It was good to see the CEO Christian Bayle come out on the Business News Network's Commodities segment on April 11, 2018 to provide viewers and investors with information and support for the massive Heartland Petrochemical Complex. It definitely seems like there has not been enough talk by management on this significant project.
Below is the information that I pulled from the interview: https://www.bnn.ca/commodities/video/inter-pipeline-looks-to-plastics-for-growth~1368195
Where are we in design and construction?
Well advanced with $450MM of procurement and design engineering. Construction started over the last few months with driving pilings. The video above from Inter Pipeline was from January 26, 2018 and can be found on the Inter Pipeline Heartland webpage. Mechanical construction will start in the summer.
There is a quick update on twitter as well and it appears Kiewit Corporation is on the job site as well https://twitter.com/inter_pipeline/status/982365646997471239 (I must have missed this piece: To enhance cost control, Inter Pipeline said it will award a lump-sum unit rate contract to Kiewit Energy Canada Corp.’s Kiewit Construction Services ULC of Calgary to deliver construction of the project.)
Propane to Plastics process:
Strategic for Inter Pipeline and Alberta. Alberta's structural defect is of having access to the markets. The disadvantage for pricing as the commodity markets are in the US.
Take Propane, which is selling at a low price in Alberta, and turn it into to high value product Polypropylene. It is a plastic pellet that is easy to transport in hopper (via train) and take it to market hubs.
There is a big value gap between Polypropylene and Propane, which they intend to turn into fee based cash flow for shareholders. Upside is contracted out to counter parties including Propane Producers and Polypropylene Consumers.
Propane Feed Stock and Polypropylene price is Commodity Risk.
Goal is to build integrated Propane Dehydrogenation Plant and Polypropylene Facility and contract it uniquely, to the world. Sign up Counter Parties under Take or Pay arrangements, of which they have a few now, and will have more later over the years. Inter Pipeline will sell capacity to producers and get a Return on Capital for shareholders that is both stable and predictable. Volatility on commodity prices would be borne by Counter Parties. Inter Pipeline will get substantial upside and Propane Producers won't need to invest their own capital to do so.
Who gets the Revenue?:
Revenue of plastic pellets will be taken by the Propane Producer. Inter Pipeline will market the Polypropylene on the Propane Producer's behalf and then the Producers will get the money remaining after Inter Pipeline deducts Capital Fees and Operating Fees.
This is a diversification play for Propane Producers in Alberta of which they can't participate in now.
Polypropylene has a great market and is in high demand. It is a flexible product used in a variety of products: automotive parts, carpets, textiles, clothing, and packaging materials. The Polypropylene market is growing 2-3% globally, which doesn't sound like a lot, but this means a world scale plant needs to be built every 2 years in North America. Inter Pipeline intends on being one of those.
Plastic environmental issues:
Polypropylene is fully recyclable and it is an environmentally friendly plastic. Plastics are needed and used every day. It is a good diversification play for Inter Pipeline and good for the Alberta economy.
Note that this $3.5BN project will employ Thousands during construction and then after construction Hundreds of full time employment will be provided for decades.
Process and engineering tricky?:
It is a new technology for Inter Pipeline and Alberta, but it is a proven technology that has been in use and improved upon for decades (Honeywell UOP LLC: C3 Oleflex technology for production of propylene at the Propane Dehydrogenation Plant. W.R. Grace & Co.: Unipol process technology for PolyPropylene Facility). High quality global engineering firms (Detailed engineering for PDH Facility by Fluor Corporation and Front End Engineering for the Integrated Polypropylene Plant by Linde Engineering) used to design.
Thoughts on Trans Mountain:
Not much to add, clearly a national interest of Canada, clearly for Alberta, and even British Columbia. The law should prevail here and the right thing will be done.
"Traditional" businesses of Inter Pipeline of transport and storing fuels:
Major Oil Sand Transport company taking product from Fort. McMurray and Northen Alberta to market hubs. Plus a sizeable conventional oil gathering business.
Inter Pipeline operates intra-Alberta and the Province of Saskatchewan, so they do not face the same challenges as export pipelines are facing in Canada. Business can get done within provinces, but it is challenging and political to build anything with export capacity.
Dividend?:
Strong with a track record of growing Year over Year off the back of accretive acquisitions and organic growth projects in Oil Sands and Conventional Oil.
Polypropylene project to grow the dividend?
One reason why the Polypropylene project is attractive is its scale and forecasted Cash Flow of $450 to $500MM earnings before interest, taxes and amortization (EBITA) towards the end of 2021. Construction is expected to be completed by the end of 2021. The Polypropylene project will support dividend growth.
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