DBRS Places Inter Pipeline (Corridor) Inc. Under Review with Negative Implications

DBRS Limited (DBRS) has today placed the following ratings of Inter Pipeline (Corridor) Inc. (Corridor) Under Review with Negative Implications:

-- Issuer Rating of “A”
-- Senior Unsecured Debentures rating of “A”

Concurrently, DBRS has confirmed the rating of Corridor’s Commercial Paper at R-1 (low) with a Stable trend (see below for more details).

DBRS has also assessed the impact of its rating actions on Corridor on its parent, Inter Pipeline Ltd. (IPL; rated BBB (high) with a Stable trend by DBRS), and is of the opinion that, at this time, there will not likely be any effect on the ratings of IPL.

The rating actions follow Canadian Natural Resources Limited’s (CNRL; rated BBB (high), Under Review with Developing Implications, by DBRS) announcement that on March 9, 2017, it entered into agreements, subject to regulatory approval, to acquire 70% of the Athabasca Oil Sands Project (AOSP), including 70% of the Scotford Upgrader, as well as additional working interests in other producing and non-producing oil sands leases. CNRL has come to an agreement with Shell Canada Limited and certain subsidiaries (collectively, Shell Canada) to acquire its 60% working interest in AOSP, including an interest in the mining and extraction operations, which is located north of Fort McMurray, Alberta (the Acquisition); the Scotford Upgrader and the Quest Carbon Capture and Storage Project located north of Edmonton; its 100% working interest in its Peace River/Carmon Creek thermal in situ operations; and its 100% working interest in the Cliffdale heavy oil field as well as other oil sands leases. CNRL and Shell Canada have also come to an agreement with Marathon Oil Corporation to jointly acquire its 20% share in AOSP and related oil sands investments.

DBRS’s rating actions reflect the fact that the strength of Corridor’s current ratings are heavily based on the strength of the 25-year Firm Service Agreement (FSA), including the very strong credit quality of the largest counterparty, Shell Canada, which currently accounts for approximately 60% of the capacity of the FSA. Shell Canada is guaranteed by its parent, Shell Petroleum N.V. (SPNV). In DBRS’s view, the credit quality of SPNV is very strong, and should the Acquisition by CNRL be successfully completed, the credit quality of the majority shipper in the FSA would weaken significantly, having a negative impact on the strength of the FSA and hence the ratings of Corridor.

Concurrently with the above rating actions, DBRS has confirmed the Commercial Paper rating of Corridor at R-1 (low) with a Stable trend. At this time, DBRS expects any potential downgrade of Corridor’s ratings to be limited to one notch, subject to further review by DBRS following the completion of the Acquisition. Therefore, the confirmation of Corridor’s Commercial Paper rating is consistent with DBRS’s rating scales.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodologies are Rating Companies in the Pipeline and Diversified Energy Industry (December 2016) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (February 2017), which can be found on dbrs.com under Methodologies.

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