Inter Pipeline Ltd (Symbol-IPL) (formerly IPL.UN)

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scomac
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Inter Pipeline Ltd (Symbol-IPL) (formerly IPL.UN)

Post by scomac »

TRP is a high quality name, but very expensive right now on a yield basis.

IPL.UN is a different story. I'm concerned with management's motives. Last summer they cancelled a special general meeting to vote on a number of proposals when it became clear that these proposals weren't popular. IIRC, management wanted to increase their performance bonuses and at the same time reduce vesting requirements. These proposals were offered up in conjunction with a vote on whether or not to issue further equity.

As it stands, IPL has an outside management team that charges a fee for managing assets. This fee is on a sliding scale based on distributable cash per unit. Once they get above a threshold level, bonus fees kick in. These are very lucrative and a scaled at 10%, 20% and 30%. ISTM, that the 10% bonus level is already in effect and the 30% level is well within range at ~$1.20/unit level of distributable cash. (Don't quote me on the exact threshold of the various levels) Never-the-less, this hamstrings growth on a per unit basis substantially.

While the operational metrics maybe quite favourable, I would refuse to get involved with this mangement team that appears to me to be offside to unitholders. That brings into question just how reliable their statements are? I've always had questions reguarding cash flow accounting and payout ratio with this specific trust.

Moderator: Split out from Petro Canada thread.
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Post by sydney2 »

scomac: Thanks for the detailed info on IPL, I wasn't aware of the details of the outside management contract although I realize it plays a big part.
You seem so very knowledgeable, I assume you work in the finance industry. With respect to TRP, I already have 550 shares and was going to purchase another 500, and would average out at about 30.75 and with the dividend thought it would be a good addition to my RRSP, in a drip.
:lol:
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Post by scomac »

sydney2 wrote: You seem so very knowledgeable, I assume you work in the finance industry.
Thankyou for the compliment, syndey. :) Sorry, I don't, or never have worked within the financial services industry. I'm semi-retired after working in my own business for about 25 years. Just a private DIYer like yourself. Keep in mind when weighing my commentary, I'm not a licenced advisor nor a certified analyst.
With respect to TRP, I already have 550 shares and was going to purchase another 500, and would average out at about 30.75 and with the dividend thought it would be a good addition to my RRSP, in a drip.
From my perspective, I would hold off on adding materially to TRP. You are already incrementally adding to your position through the DRIP. At some point, utility stocks are going to sell-off, most likely in response to an interest rate spike. Adding at that point would make more sense as long as the total holding in TRP isn't excessive --- I'd limit to 5% on a cost basis.

Regards,

Scott
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Post by angelocardoc »

Management's motives are the same in all company's...$$$$$$$

Isn't the bonus for management incentive to do better?

So far they have been paying dividends and increasing them too.

Without this insentive we probably wouldn't have had these results.

I'm not a financial advisor but I've owned IPL since Dec 2002

I'm quite happy with the results so far.
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Post by scomac »

angelocardoc wrote:Management's motives are the same in all company's...$$$$$$$

Isn't the bonus for management incentive to do better?
Absolutely, but bonuses that richly reward managers yet have little positive impact to unitholders aren't well aligned in my opinion. When potentially 30% of additional cash-flows can end up in the hands of outside managers, this is excessive.
So far they have been paying dividends and increasing them too.

Without this insentive we probably wouldn't have had these results.
Not necessarily. Fort Chicago has internalized management that cost unitholders a fraction of what IPL.UN is paying. FCE.UN has paid dividends and increased them too. In fact, in the entire pipe trust sector, IPL.UN has by far the richest management contract.
I'm not a financial advisor but I've owned IPL since Dec 2002

I'm quite happy with the results so far.
A rising tide lifts all boats.... :roll:
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Post by angelocardoc »

Hi

Lets say that two years ago you bought one unit of IPL & one unit of FCE

IPL cost $ 7.25 two years ago

FCE cost $ 9.75 two years ago

Look at the price now. Better growth in IPL

Dividends may be higher in FCE right now but the unit price is way above that.
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Pay peanuts...get peanuts...
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Post by Arby »

Anyone have the details on why S&P has withdrawn its ratings for IPL? I couldn't find any significant recent news release from IPL. Presumably the details are in the full S&P report which is available to subscribers of Ratings Direct.
TORONTO (Standard & Poor's) Oct. 27, 2006--Standard & Poor's Ratings Services today said that it withdrew its 'SR-3' Canadian stability rating, stable outlook, and moderately aggressive distribution profile assessment on Inter Pipeline Fund, as previously announced on July 31, 2006. The long-term corporate credit rating on the fund (BBB/Stable/--) is unaffected by the withdrawal of the stability rating.
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Post by William »

I’ve owned IPL for quite some time now and the results have been quite good, now I realize that the results could have been better. I was just reading a recent article (G&M I think) on corporate governance and IPL was at the bottom. I waited until today so that I would get the dividend and sold half, the other half goes tomorrow.
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IPL

Post by sydney2 »

Below is a response from IPL regarding removal of their rating on DBRS.

Inter Pipeline is an S&P BBB (stable) investment grade rated company. Inter Pipeline requested S&P (not DBRS) to remove the (SR-3) stability rating for several reasons, and none related to the perceived stability of our monthly cash distributions. As a unitholder, you will know that we just increased our monthly distribution by 7.7% to $0.84 per unit on an annualized basis.

Some of the reasons Inter Pipeline requested the removal of the rating were:

1. Inter Pipeline's long-term credit rating (BBB) is more reflective of our credit performance.
2. Institutional investors have indicated to us directly they do not use the stability rating to make investment decisions or rate credit quality; they will rely on long-term credit ratings, which is a more important measure.
3. The cost of a stability rating was high to maintain without any significant benefits.
4. S&P's stability rating market is still relatively immature with only 40 companies participating.
5. Stability rankings go from SR-1 to SR-7, but no companies are rated below SR-4.

DBRS still has a SR-3 rating on Inter Pipeline Fund, but because we do not pay for that rating, we cannot request that it be withdrawn. If you require further information or would like to discuss, please let me know.
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Post by arthur »

Recommended on ROB TV today.
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below 6.00???

Post by jabney »

Anybody looking at this below $6.00? I know exploration is slowing down with oil prices being so low, but I don't think anybody is really cutting production in any significant way that would affect their income? Is there a distribution cut priced in here or is this just being hammered because it is in the oil and gas sector? Not a whole lot in terms of media lately, so not sure if I'm missing something. Anybody have any thoughts on this one?

Disclosure: I own a half position with an ACB around 9.00, and looking to add more now.
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Post by Nemo2 »

Sold ours, (with an ACB of $8.68 ), this morning @ $6.12 for ongoing tax loss harvesting.

Might buy it back......down the road.
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Post by investor99 »

Rare statement from IPL.UN away from an earnings release below:
Inter Pipeline Fund Announces December 2008 Cash Distribution and Confirms Cash Flow Stability
Inter Pipeline expects to maintain its current level of cash distributions through 2011 and beyond, despite becoming taxable in 2011.

In light of unprecedented and continuing volatility in global capital markets, Inter Pipeline would like to provide additional commentary on the fundamental strengths and positioning of the Partnership.

Strong Contract Based Cash Flow

Inter Pipeline has a well-diversified asset base which generates long-term and predictable cash flow, thereby providing unitholders with a stable source of monthly cash distributions. The majority of Inter Pipeline's cash flow is derived from transportation and processing agreements that are either fee-based or involve long-term cost of service contracts.

Inter Pipeline's Corridor and Cold Lake pipeline systems, which together comprise its oil sands transportation business segment, are contracted under two separate cost of service contracts that are not subject to changing commodity prices or the amount of volume transported. The Corridor and Cold Lake systems provide transportation service to major oil sands developments that are in production today. Inter Pipeline's long-term transportation service contracts are with high credit quality senior producers and integrated energy companies including Shell, Chevron, Marathon, Imperial Oil, EnCana and Canadian Natural Resources.

Low Commodity Price Exposure

The vast majority of Inter Pipeline's cash flow is not dependant on pricing relationships within energy commodity markets. Commodity price exposure is limited to the pricing of a single natural gas liquid ("NGL") product, propane-plus, at the Cochrane NGL extraction facility. Inter Pipeline realizes a market price for propane-plus products extracted at the Cochrane facility, and incurs the cost of natural gas purchased to replace the volume of extracted NGL's. This commodity price relationship is commonly referred to as the "frac-spread".

While frac-spreads have deteriorated significantly in recent months with the dramatic fall in crude oil prices, the impact on Inter Pipeline's cash flow has been significantly mitigated through hedging contracts. For the current quarter ending December 31, 2008, Inter Pipeline has hedged 27% of forecast propane-plus volumes at an average price of 43 CDN cents per US gallon. For 2009, Inter Pipeline has hedged 32% of forecast propane-plus volumes at an average price of 83 CDN cents per US gallon, and for 2010 11% of forecast volumes have been hedged at 81 CDN cents per US gallon. Based on a 15-year average frac-spread of 27.5 US cents per US gallon, Inter Pipeline's contribution from frac-spread represents only approximately 10% of its consolidated earnings before interest, taxes, depreciation and amortization.

Strong Credit Profile

As at September 30, 2008, Inter Pipeline had a conservative recourse debt to capitalization ratio of 42.6% and over $1.3 billion of credit capacity available on its fully committed credit facilities. The remaining tenure on these committed facilities is approximately 4 years. Inter Pipeline's banking syndicate is well diversified with commitments from 16 major Canadian and international lending institutions. In addition, Inter Pipeline maintains an investment grade corporate credit rating.

Given this strong credit profile, Inter Pipeline believes it is well-positioned to continue routine operations and grow organically during this period of global uncertainty.
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Post by retireat50 »

I'm looking at starting a small position in this and then enrolling in their new DRIP program which allows reinvestment at a 5% discount to unit price. They've indicated that their distribution should remain unchanged after conversion. Their payout ratio is in the low 70's so this seems like a reasonable stance. Also, the expansion of their Corridor line is about 70% complete and on budget so I see this as a good growth and income prospect. The other thing I like about this is that their profits rise when the spread between oil and nat gas becomes wider and I continue to see slumping nat gas relative to oil.

Only question mark here is that AltaGas has an application for a line that would take business away from their Cochrane line. They are extremely vague as to what impact this would have on them and are taking the stance that AltaGas will not get AEUB approval for this line, but I don't believe that. Also they don't even mention this in their 2008 annual report as a risk factor which is odd/concerning. Anyone have more info on this?
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Post by zinfit »

Why is this company taking a bruising today?
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Post by Nemo2 »

zinfit wrote:Why is this company taking a bruising today?
Inter Pipeline To Sell 18.2M Class A Units At C$8.25 Each >IPL.UN.T
8:15am ET (Dow Jones Newswires)
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Post by zinfit »

Thank you Nemo. This should be a one day bruising?
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Post by Nemo2 »

zinfit wrote:Thank you Nemo. This should be a one day bruising?
Ah....if only I knew that. :wink:
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Post by Locke »

Wonder I should have just bought it on the open market now that I've seen it gone down to 8.41 than sign up for sale @ 8.25 which settles later.
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Re: Inter Pipeline Fund (Symbol-IPL.UN)

Post by retireat50 »

IPL has indicated they will not convert to a regular corporate structure come 2011. Their website indicates distributions for 2011 will qualify for the dividend tax credit. Since they are a limited partnership I was wondering how this could be possible. Would it not be treated as interest income or ROC if applicable?

As per IPL's site.........

Will distributions in 2011 and onwards benefit from the dividend tax credit?

Yes, the taxable portion of distributions in 2011 and onwards will qualify for the dividend tax credit, excluding a minor amount of interest income sourced from foreign operations. Therefore, once Inter Pipeline becomes a taxable entity in 2011, cash distributions will receive more favourable tax treatment than is currently the
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Re: Inter Pipeline Fund (Symbol-IPL.UN)

Post by DavidR »

retireat50 wrote:IPL has indicated they will not convert to a regular corporate structure come 2011. Their website indicates distributions for 2011 will qualify for the dividend tax credit. Since they are a limited partnership I was wondering how this could be possible. Would it not be treated as interest income or ROC if applicable?
The "SIFT" rules apply to publicly traded limited partnerships as well as income trusts. With the LP paying a tax based on distributions (of business income, but not the foreign interest, it appears), fairness requires a dividend tax credit.
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Re: Inter Pipeline Fund (Symbol-IPL.UN)

Post by Locke »

Straight from the IPL website

15. Will distributions in 2011 and onwards benefit from the dividend tax credit?
Yes, the taxable portion of distributions in 2011 and onwards will qualify for the dividend tax credit, excluding a minor amount of interest income sourced from foreign operations. Therefore, once Inter Pipeline becomes a taxable entity in 2011, cash distributions will receive more favourable tax treatment than is currently the case. For example, using 2009 enacted tax rates, a Canadian resident in the highest marginal tax bracket would have the effective tax rate on taxable distributions reduced by approximately 18% to 25% depending on the province of residence.

Investors should be advised that income tax rates are continually subject to future legislative changes and unitholders are advised to consult their own tax advisors regarding tax-related matters


On a different note,

I currently hold this in my RRSP given the distributions are considered income at the moment. I'm considering swapping it out for a US stock. Would it be worthwhile tax efficiency wise?
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Re: Inter Pipeline Fund (Symbol-IPL.UN)

Post by adrian2 »

Locke wrote:I currently hold this in my RRSP given the distributions are considered income at the moment. I'm considering swapping it out for a US stock. Would it be worthwhile tax efficiency wise?
Very much so, but check first if your US stock is in a capital loss position. If that is the case, a more complicated maneuver is required, as any loss is denied when the stock is transferred, or swapped, to an RRSP.
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Re: Inter Pipeline Fund (Symbol-IPL.UN)

Post by Locke »

adrian2 wrote:
Locke wrote:I currently hold this in my RRSP given the distributions are considered income at the moment. I'm considering swapping it out for a US stock. Would it be worthwhile tax efficiency wise?
Very much so, but check first if your US stock is in a capital loss position. If that is the case, a more complicated maneuver is required, as any loss is denied when the stock is transferred, or swapped, to an RRSP.
Well I was actually thinking of initiating a new position US dividend stock in sector that Canada is lacking in i.e. tech or healthcare or maybe an ETF. Therefore I won't be affected by the deemed disposition.
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Re: Inter Pipeline Fund (Symbol-IPL.UN)

Post by adrian2 »

Locke wrote:Well I was actually thinking of initiating a new position US dividend stock in sector that Canada is lacking in i.e. tech or healthcare or maybe an ETF.
Same ideas as mine. IMO, go for it.
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