DBRS Morningstar Confirms Ratings of Inter Pipeline (Corridor) Inc. at A (low) and R-1 (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Commercial Paper rating of Inter Pipeline (Corridor) Inc. (Corridor or the Company) at A (low) and R-1 (low). All trends are Stable. Corridor is 100% owned by Inter Pipeline Ltd. (rated BBB with a Stable trend by DBRS Morningstar). The rating confirmations reflect the Company's strong business risk profile and stable financial risk profile.

Corridor has exclusive rights to transport diluted bitumen (dilbit) produced by the Athabasca Oil Sands Project (AOSP) in Alberta and provides a vital link between the Muskeg River Mine and the Jackpine Mine north of Fort McMurray, Alberta, as well as Canadian Natural Resources Limited’s (CNRL; rated BBB (high) with a Negative trend by DBRS Morningstar) Scotford Upgrader (SU), which is adjacent to Shell Canada Limited’s (Shell) Scotford Refinery near Edmonton. Shell operates SU and the Quest Carbon Capture and Storage Project.

Corridor’s business risk profile continues to be supported by a cost-of-service-based firm service agreement (FSA) with relatively strong investment-grade shippers that are also the AOSP sponsors: CNRL owns 70%, including 60% through its affiliate, Canadian Natural Upgrading Limited; Chevron Corporation (rated AA with a Negative trend by DBRS Morningstar) owns 20%; and Shell owns 10%. The FSA extends to 2049 and allows recovery of substantially all operating costs, including depreciation, taxes, and financing costs, plus a return on equity on the rate base, which eliminates volume or commodity price risks and provides a steady stream of cash flows.

While the credit profiles of the shippers have weakened due to the recent decline in crude oil prices, DBRS Morningstar expects commodity prices to recover in 2022 to the lower end of its midcycle range of $50/barrel to $60/barrel as the Coronavirus Disease (COVID-19) runs its course and the global economy begins to rebound. DBRS Morningstar notes that the overall credit profile of the shippers will remain strongly investment grade and supportive of the current ratings even in the event of a single-notch downgrade to their credit ratings. Corridor's business risk profile is also supported by ample recoverable bitumen reserves at AOSP and Corridor's position as the sole pipeline with exclusive rights to transport dilbit produced from AOSP. DBRS Morningstar believes that AOSP will remain a key focus asset for the shippers given its ability to generate positive netbacks at current commodity prices, incentivizing them to use the pipeline.

DBRS Morningstar expects Corridor to maintain a stable financial profile with predictable cash flows supported by the long-term FSA. DBRS Morningstar notes that Corridor has maintained its debt-to-rate base ratio at or around the benchmark criteria of 75% (Q1 2020: 73.4%). The ratings incorporate DBRS Morningstar’s review of the Company’s financial and other relevant information, which will not be disclosed in DBRS Morningstar’s rating report for Corridor, as it is a private company. Although an upgrade to Corridor’s ratings is unlikely in the near term, the ratings could come under pressure should the credit quality of the shippers deteriorate materially.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Pipeline and Diversified Energy Industry (November 26, 2019); DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 10, 2020); and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 25, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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