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Mar 30, 2020

Inter Pipeline slashes dividend 72% as virus, oil price war hit

Inter Pipeline slashes dividend 72% amid virus, oil fallout

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Inter Pipeline Ltd. is slashing its dividend 72 per cent as the energy industry faces the fallout from the COVID-19 outbreak and the oil price war between Saudi Arabia and Russia. The company, which operates pipelines and other energy infrastructure assets in Western Canada and Europe, announced Monday it will reduce the monthly distribution to four cents per share from 14.25 cents, starting with the May 15 payment.

The company said it expects to save $525 million on an annualized basis as a result of the dividend cut.

In the release, Inter Pipeline president and CEO Christian Bayle said his company remains confident in its operations, but the twin black swan events hitting the energy industry necessitated prudent action.

"It is important to be clear that the decision of the board of directors to reset the dividend in no way reflects a lack of confidence in our core businesses,” he said. “However, we are currently in a unique and very challenging business environment driven by the COVID-19 pandemic and oil supply conflict between OPEC+ member nations.”

Dividend cuts are a rarity for energy infrastructure companies, which helps explain their appeal to yield-oriented investors. Inter Pipeline has increased its dividend every year at least from 2009 through 2018, according to company data. The company’s distribution did not increase at the end of 2019.

The company is also cutting executive pay, with Bayle’s salary falling 20 per cent. Other executives will take a 10 per cent cut, while the cash retainer for directors is being cut 15 per cent.

Inter Pipeline is also shelving plans to sell its European bulk liquid storage division. In the release, Bayle said while talks with potential purchasers were in advanced stages, the virus has upended the process.

“Europe, like the rest of the world, is urgently addressing the COVID-19 pandemic. All European countries we operate in have recently implemented sensible measures to greatly restrict travel and human contact,” he said. “Potential purchasers of this business have been significantly affected which has had a material impact on the execution of our process.”

Inter Pipeline said it may revisit a potential sale of the unit at a later date.