Morningstar DBRS Confirms Credit Ratings on Northern Courier Pipeline Limited Partnership at A (low) With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Northern Courier Pipeline Limited Partnership's (NCPLP) Issuer Rating as well as the credit rating on its fixed-rate, first-lien senior-secured amortizing $1 billion Senior Notes at A (low). Both trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations reflect NCPLP's smooth operations and satisfactory financial performance during the review period, with required minimum service levels achieved at all times. The debt service coverage ratio (DSCR) was 1.41 times (x) in FY2024, which is largely on par with Morningstar DBRS' credit rating-case expectations but improved from the DSCR of 1.35x in 2023, which was pressured by certain one-time adjustments. Morningstar DBRS notes that both revenue and costs in 2024 largely met budget forecasts with some limited exposure to higher-than-projected energy costs over the year, which NCPLP can recover from Fort Hills Energy LP (FHELP or the shipper) in the following year. Operations met expectations and NCPLP met availability and service-level contractual commitments as it fully addressed the cause of certain intermittent outages through the year. Morningstar DBRS views these issues as relatively routine for pipeline operations, with no impact on the credit ratings. In addition, strong performance at the Fort Hills bitumen mine (Fort Hills) in Alberta continued in 2024 and into Q1 2025. In FY2024, the average production at Fort Hills was 167,750 barrels per day (b/d), representing 86.5% of the nameplate capacity. In Q1 2025, production rose to 176,400 b/d, exceeding 90% capacity. Based on Fort Hills' performance, Morningstar DBRS believes that NCPLP will continue to be an essential part of the infrastructure and supply of transportation and tank services to the mine, providing the only practical transportation conduit for hot bitumen out of Fort Hills to the East Tank Farm where bitumen is stored and prepared for long-distance transport to end markets. Operations should be stable going forward with a projected DSCR of 1.44x in FY2025.

NCPLP is a nontaxable, bankruptcy-remote special-purpose vehicle established to own and operate the Northern Courier Pipeline (NCP), a mission-critical component of Fort Hills. NCPLP is 85% owned by a subsidiary of Alberta Investment Management Corporation and 15% owned by Astisiy Limited Partnership (Astisiy), which is owned by a consortium of Indigenous communities and Suncor Energy Inc. (SEI; rated A (low) with a Stable trend). Astisiy's ownership was triggered when SEI exercised its option to acquire ownership from TransCanada PipeLines Limited (rated BBB (high) with a Stable trend) and its ultimate parent, TC Energy Corporation, in November 2021. The change in ownership stake did not have a credit rating impact on NCPLP, given SEI's involvement in managing NCPLP.

CREDIT RATING DRIVERS
The credit ratings are supported by the highly predictable cash flow expected under the Transportation Services Agreement; the criticality of the asset as an essential infrastructure component of the Fort Hills operation; the alignment of interest among the parties to the contract structure; and a supportive debt package and covenants. Challenges to the credit ratings include: the cap on the credit rating from the Shipper's credit quality; the potential impact of economics at the Fort Hills operation; and the exposure to operational and environmental event risk.

FINANCIAL OUTLOOK
NCPLP's credit ratings continue to be underpinned by the highly predictable and high-quality cash flow resulting from the cost-of-service (COS) nature of the Transportation Services Agreement and the Tank Services Agreement (together, the TSAs); the expected strong operational performance; and the high quality of the asset, all of which result in projected minimum and average DSCRs of 1.41x and 1.64x, respectively, that exceed the requirements for the current credit rating level. Morningstar DBRS considers NCPLP's operations to be relatively straightforward, with operations services now provided by an SEI subsidiary that is an experienced operator with aligned interests.

CREDIT RATING RATIONALE
The NCP has been in service since November 2017 and NCPLP has been collecting monthly toll revenue under the COS model under the TSAs from FHELP. The COS nature of the tolling TSAs essentially eliminates bitumen volume and commodity price volatility and passes on virtually all operating and maintenance cost, including sustaining capital expenditures, to the Shipper. Since 2019, NCPLP has consistently achieved availability and performance metrics exceeding the service levels specified in the TSAs. Given this positive operating record and Morningstar DBRS' view that Fort Hills is a viable operation over the term of the debt, the primary credit rating constraint is the Shipper's counterparty risk.

Strong performance at Fort Hills continued in 2024 and Q1 2025 following a mine improvement plan that commenced in Q4 2022, including an accelerated sequence of mine development from the South Pit to the Centre and North Pits, which has now made the second train operational. The production profile in 2024 and Q1 2025 aligns with the expected outcomes of this improvement plan. Since the NCPLP's financial close in 2019, FHELP has undergone a significant change in ownership structure as both Teck Resources Limited (rated BBB with a Stable trend) and TotalEnergies EP Canada Ltd. sold their interests in the bitumen mine back to SEI. As a result, SEI is the sole shareholder and guarantor of FHELP's obligations. Morningstar DBRS maintains its view on the credit quality of SEI as the guarantor of FHELP's obligations. FHELP is the limited partnership formed to own and operate Fort Hills. FHELP is also the counterparty to the TSAs with NCPLP and has reported materially improved netbacks amid strong energy prices and an operational ramp-up. Morningstar DBRS also recognizes that certain provisions provide FHELP remedies to support its ability to pay toll costs if a guarantor defaults; however, this is subject to prevailing market conditions at the time of any potential default, which may limit the effectiveness of this remedy.

Because Morningstar DBRS' credit view on FHELP caps NCPLP's credit ratings, any change in either the partner composition or the credit ratings on SEI could result in a change to NCPLP's credit rating, absent any mitigating provision.

Morningstar DBRS does not view a positive credit rating action on NCPLP as likely at this time. Similarly, Morningstar DBRS does not believe that there will be pressure on the credit ratings due to deteriorating credit quality of the Shipper's shareholder or guarantor at this time. However, significant operational underperformance that consistently breaches the required minimum service levels or an extended service interruption triggered by an extraordinary event (fire, spills, etc.) that causes significant revenue loss could lead to an adverse impact on NCPLP's credit ratings.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) at https://dbrs.morningstar.com/research/454196.

CREDIT RATING DRIVERS AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of Credit Rating Drivers
In the analysis of NCPLP, the credit rating driver factors listed in the methodology are considered in the order of importance.

(B) Weighting of FRA Factors
In the analysis of NCPLP, the following FRA factor listed in the methodology was considered more important: DSCR (the only applicable factor).

(C) Weighting of the Credit Rating Drivers and the FRA
In the analysis of NCPLP, the FRA carries greater weight than the credit rating drivers.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Project Finance (December 10, 2024) https://dbrs.morningstar.com/research/444393

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186) which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:
-- Morningstar DBRS Global Corporate Criteria (3 February 2025), https://dbrs.morningstar.com/research/447186
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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