Inter Pipeline Fund (Inter Pipeline) said that it will invest about $72 million to expand oil delivery capabilities on the Bow river pipeline system. The project will allow customers, for the first time, to ship segregated crude oil streams south from Hardisty, Alberta to refining markets in Montana. In support of its investment, Inter Pipeline has received shipping commitments to transport 30,000 barrels per day (b/d) of segregated crude oil from Hardisty under seven year take-or-pay contract.
New Oil Segregation Service
The Bow river pipeline system gathers oil production in southern Alberta for delivery north to the oil storage and marketing hub at Hardisty, Alberta and south to interconnecting export pipelines near the Montana border. The existence of multiple mainline transmission pipelines and flexible pumping configurations allow oil to flow in both directions.
In 2008, the Bow river system delivered 26,000 b/d north to Hardisty and 89,500 b/d south to the Montana border. Southbound shipments consisted of 62,000 b/d of locally gathered Bow river crude oil and an additional 27,500 b/d of oil sourced from the Hardisty oil storage hub. Southbound deliveries on the Bow River system are currently shipped as a single, commingled blend of oils.
The Bow River expansion project announced today will allow crude oil grades sourced at the Hardisty storage hub to be shipped south as a distinct, segregated stream. This will give refining customers access to multiple grades of oil available at Hardisty without product commingling with the locally gathered Bow river oil stream.
Long Term Competitive Positioning
In recent years Inter Pipeline has completed several capacity expansions, line reversal and facility enhancement projects on the Bow river pipeline system.
David Fesyk, Inter Pipeline’s president and chief executive officer, commented “The Bow River segregation project has been developed in direct response to customer demand for more flexible shipping options from the Hardisty market hub. At the same time, it will strengthen our competitive position as the primary supplier of Canadian crude oil to the Montana refining market.”
Firm Shipping Commitments
Inter Pipeline has received shipper support for the Bow river oil segregation project. Through an open season tendering process, shippers have committed to transport 30,000 b/d of segregated oil under a seven-year take-or-pay agreement. This agreement will allow Inter Pipeline to generate stable revenue, regardless of volumes physically shipped south from Hardisty.
Revenue is expected to commence upon completion of construction and commissioning activities in the first quarter of 2010.
Attractive Investment Economics
The expansion of southbound delivery capabilities will involve the construction of 135 kilometers of new pipeline and related facility modifications at an estimated capital cost of about $72 million. This investment is expected to generate $16.5 million per year in incremental cash flow, or about $0.04 per unit annually.
Funding for the project will come from Inter Pipeline’s existing committed credit facility. At year-end 2008, this facility had $325 million of credit capacity available with a renewal term that extends through 2012.