EUR 850.00 For Business Accounts Only

Morningstar | Inter Pipeline Should Benefit From Solvent-Assisted Steam-Assisted Gravity Drainage

Inter Pipeline is a transportation and midstream service provider in Canada and Europe. It owns and operates a system of pipelines that transport blended bitumen and diluent from producing oil sands projects. Supplementing the oil sands pipelines are the company’s conventional oil pipelines, natural gas liquids extraction, and bulk liquid storage businesses. The long-term cost-of-service contracts on the oil sands infrastructure afford the company stable cash flows regardless of the commodity price environment. Inter Pipeline's overbuild strategy for its oil sands pipeline infrastructure allows the company to benefit from projected oil sands production growth with minimal capital investments. The infrastructure supports approximately 4.6 million of barrels per day of delivery volumes, while Inter Pipeline delivered approximately 1.2 mmbbl/d in 2018. We project Inter Pipeline to add approximately 1.5 mmbbl/d of incremental volumes from oil sands growth projects, most which are already contracted. We expect Inter Pipeline to increase its annual dividend over the long term at 2% annually, while maintaining a comfortable distributable cash coverage ratio that averages 1.8 times throughout the forecast period. The stock is currently yielding near 8.1%, comparing very favorably with other Canadian midstream peers. Overall, Inter Pipeline is in a strong position to benefit from growing oil sands production in Canada while rewarding investors with an industry-leading dividend. Additionally, we think that the market is underestimating Inter Pipeline's potential increased cash flows associated with the growing oil sands supply, and the stock looks undervalued at current levels.