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Inter Pipeline still uncertain about commercial support for C$3.1B NGL plant

Inter Pipeline Ltd. places a high priority on the development of a C$3.1 billion NGL processing project it inherited when it bought the Canadian assets of Williams Cos. Inc., but that development is not a done deal, CEO Christian Bayle said.

The Calgary, Alberta-based midstream operator committed C$56 million to the project in the second quarter, Bayle said on the company's second-quarter earnings call. Despite the spending on civil work at the project site and front-end engineering and design, Bayle conceded that there is no guarantee the project will proceed, and Inter Pipeline has pushed back a final decision on it.

"Negotiations with potential counterparties to establish long-term, take-or-pay contracts are ongoing," Bayle said on the Aug. 11 call. "We have shifted our timing, and we're now targeting to make a final investment decision on this large-scale opportunity in the second half of 2017, with operations set to begin in the second half of 2021."

Inter Pipeline bought Canadian assets from Williams and Williams Partners LP about a year ago for C$1.35 billion. Williams had already started plans for a C$1.85 billion propane dehydrogenation facility near an NGL extraction plant near Redwater in central Alberta. Inter Pipeline expanded that project to include a polypropylene facility and bumped its price estimate to C$3.1 billion. The project has been awarded royalty credits under an Alberta government program to boost the NGL business. Bayle said the project would not proceed until long-term processing contracts have been secured.

"It is all commercial," Bayle said. "There's no project, call it execution, issues that are preventing sanction, quite frankly. If we were to reach a sufficient level of commercial support for the investment tomorrow, we would sanction tomorrow."

Negotiations with potential customers have been "very fluid and very constructive," Bayle said. Inter Pipeline expects that it will take a few more months to firm up the deals. "It is our view that to successfully execute this project, we need the right commercial contracts in place underpinning it," Bayle said. "We're willing to set the pace of the development to provide those high-quality contracts."

On Aug. 10, Inter Pipeline reported second-quarter net income attributable to shareholders of C$102.3 million, or 27 Canadian cents per share, down from C$114.4 million, or 34 cents per share, in the year-ago quarter.