DBRS Comments on the Impact of Cenovus Energy’s Acquisition of ConocoPhillips Western Canadian Assets on Inter Pipeline Ltd.

DBRS Limited (DBRS) today notes that Cenovus Energy Inc. (Cenovus; rated BBB (high) Under Review, Negative) has entered into an agreement to acquire the remaining 50% interest in the Foster Creek Christina Lake Partnership (FCCL) from ConocoPhillips (Conoco; rated BBB (high), Stable), giving it full ownership of FCCL. Following the announcement on March 29, 2017, DBRS placed Cenovus’s ratings Under Review with Negative Implications. Please refer to the DBRS press release, “DBRS Places Cenovus Energy Inc. Under Review with Negative Implications Following Agreement to Acquire ConocoPhillips Assets in Western Canada.”

Cenovus’s acquisition of Conoco’s interest in FCCL increases Inter Pipeline Ltd.’s (IPL; rated BBB (high), Stable) counterparty exposure to Cenovus, as FCCL has contracted capacity on IPL’s Cold Lake and Polaris pipelines. Cenovus is also a shipper on IPL’s Bow River conventional oil pipeline, although the volumes transported are not material. Cold Lake is a bitumen blend and diluent pipeline system, with FCCL, Imperial Oil Limited (Imperial; rated AA, Stable) and Canadian Natural Resources Limited (rated BBB (high), UR-Dev.) accounting for 34%, 38% and 26%, respectively, of the volumes shipped in 2016. Polaris is a diluent pipeline system, with FCCL, Suncor Energy Inc. (rated A (low), Stable) and Imperial accounting for 36%, 11% and 36%, respectively, of the volumes shipped in 2016. Cold Lake and Polaris contributed approximately 46% of IPL’s 2016 EBITDA.

DBRS notes that the acquisition of Conoco’s 50% share of FCCL and a potential rating downgrade of Cenovus will moderately increase IPL’s counterparty risk; however, IPL’s overall credit risk profile is likely to remain unchanged on the strength of the other shippers using the Cold Lake and Polaris pipelines. In the event Cenovus’s current credit rating is downgraded beyond one notch, DBRS will reassess the overall impact on the credit risk profile of IPL.

Notes:
All figures are in Canadian Dollars unless otherwise noted.

The principal methodology is Rating Companies in the Pipeline and Diversified Energy Industry (December 2016), which can be found on dbrs.com under Methodologies.

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