Inter Pipeline reports 60 per cent of Heartland plant is contracted
Contracts come as firm continues fight against Brookfield takeover
CALGARY — Inter Pipeline Ltd. says it has signed take-or-pay contracts covering about 60 per cent of production from the Heartland Petrochemical Complex it’s building northeast of Edmonton as it continues to fight off a hostile takeover bid by Brookfield Infrastructure Partners LP.
The Calgary-based company said Thursday the deals with a total of seven parties have an average duration of nine years and it is confident it will achieve its goal of 70 per cent contracted production before the plant, designed to convert propane into polypropylene plastic pellets, starts up in early 2022.
“Our announcement today is very positive for shareholders. It provides clarity around the success we’ve had in creating what we call more like an infrastructure-based contracting model for the plant,” Inter CEO Christian Bayle said in an interview.
The contracts are with a mix of North American polypropylene consumers as well as Canadian and multinational producers who will pay to have their propane transformed into polypropylene at the plant and then share in the profit when that product goes to market, he said.
When Brookfield made its takeover offer in February of $16.50 per share in cash or 0.206 of a Brookfield Infrastructure Corp. class-A exchangeable share (a deal that values Inter at $7.1 billion), it said it would consider increasing the bid if Inter can “substantiate” growth and commercialization plans for the $4-billion Heartland project.
Inter said Thursday it expects Heartland to generate annual adjusted earnings before interest, taxes, depreciation and amortization of between $400 million and $450 million in its first full year of operation, based on 70 per cent stable contracted sales and 30 per cent merchant sales.
In estimating the merchant sales, Inter said it is assuming a $1,200 (U.S.) per tonne difference between North American posted polypropylene and Edmonton propane prices, a “conservative” assumption based on the current spread of $2,300 per tonne and the seven-year average of $1,400 per tonne.
Brookfield declined to comment on Thursday.
Bayle laughed when asked if Brookfield had called him after the announcement, then declined to answer due to confidentiality rules associated with the strategic alternatives review launched by the Inter board after the Brookfield bid.
“How that translates into a reaction from Brookfield, that’s really a question for them,” he said.