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Inter Pipeline Ltd - Q3-2020 Earnings - Price Target Update

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Inter Pipeline Ltd. (IPL) owns and operates petroleum infrastructure assets totaling $13.7B of assets as Sept-30-2020 comprised of pipelines and natural gas processing facilities located in Western Canada and bulk liquids storage facilities in Sweden Denmark. The bulk liquids storage assets located in Germany and Ireland were sold in Q4-2020. They operate in four segments-Oil Sands Pipelines, Conventional Pipelines, NGL Processing and Bulk Liquids Storage, 95% of income is from Canada. The Oil Sands Pipelines segment generates about 60% of funds from operations, NGL Extraction - 20%, Conventional Pipelines – 10% and the Bulk Liquids Storage - 5%. They gather 40% of production from the Canadian Oil Sands, transport 15% of conventional Canadian crude volumes, process 40% the natural gas exported from Alberta. They have approximately $6B of capital projects planned to come into service between 2020 and 2022, the largest being the Heartland polypropylene fractionator acquired with the Williams Co. acquisition with a budgeted completion cost of $4B.

CAPITAL DEVELOPMENT

The Heartland facility is planned for completion Q1-2022. It will be North America's first integrated propane dehydrogenation (PDH) and polypropylene(PP) complex and will convert low-cost, locally-sourced propane into higher value polypropylene. As of Sept-30-2020 total capital spent on the project was $2.9B compared to a budgeted total cost when complete of $4B. Forecast incremental AFFO is $200M($0.45 per share before tax). The major capital project is the construction of the $4B Heartland Petrochemical Complex (HPC), which is located in Strathcona County, Alberta near their existing Redwater Olefinic Fractionator. Upon completion, HPC will be the first integrated propane dehydrogenation (PDH) and polypropylene (PP) facility of its kind in Canada and will convert low-cost, locally sourced propane into higher value polypropylene. The completion is planned for Q1-2022. Project costs are also expected to be eligible for Alberta government programs to reimburse capital costs. The total project is forecast to cost $4B of which $2.7B has been spent to Sept-30-2020. The process to secure a partner to purchase a material interest in the HPC project is ongoing as is contracting out production.

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