Inter Pipeline Fund
TSX : IPL.DB
TSX : IPL.UN

Inter Pipeline Fund

September 29, 2005 08:58 ET

Inter Pipeline Fund Announces Acquisition of Major Petroleum and Petrochemical Storage Business

CALGARY, ALBERTA--(CCNMatthews - Sept. 29, 2005) - Inter Pipeline Fund (TSX:IPL.UN) ("Inter Pipeline") announced today that it has entered into an agreement to acquire Simon Storage Ltd. ("Simon"), the largest independent petroleum and petrochemical storage business in the United Kingdom. The transaction will involve the purchase of all outstanding share capital in Simon Storage Holdings Ltd., the privately held parent of Simon, for a cash consideration of 120 million Great Britain Pounds ("GBP"), or approximately $250 million Canadian, subject to closing adjustments. The acquisition is expected to close on or about October 4, 2005 subject to certain closing conditions.

Funding for the acquisition will be provided from Inter Pipeline's existing bank credit facilities.

Inter Pipeline further announces its intention, contingent on closing of the transaction and approval from the Board of Directors, to increase its monthly cash distributions from $0.0625 to $0.065 per unit, or $0.78 per unit on an annualized basis. The new target distribution level represents a $0.03 per unit increase relative to Inter Pipeline's current annualized distribution rate of $0.75 per unit. Unitholders of record on December 31, 2005 will be eligible for the expected distribution increase, payable in mid January 2006.

Overview of Simon Storage Ltd.

Simon wholly owns and operates seven deep water storage terminals located on the coasts of the United Kingdom and the Republic of Ireland with a combined liquid storage capacity of over six million barrels. The business is highly integrated with the operations of major regional oil refining and petrochemical complexes. Simon's liquid storage terminals have the flexibility to receive and distribute products via ship, rail, truck and pipeline.

In addition, Simon offers a broad range of complementary services through its bulk liquid trucking, engineering, training and facilities management divisions. Simon currently operates ten fuel distribution terminals in England, Wales and Ireland on behalf of Shell, ConocoPhillips, Total and ChevronTexaco. The company also provides employee training, automation and engineering services to several of the world's largest integrated energy companies.

Simon has approximately 440 employees and is based in Redhill, Surrey, UK.

A map illustrating the location of Simon's major assets can be accessed through the following link http://www.ccnmatthews.com/docs/929ipl_map.pdf

Strong Investment Opportunity

"We view Simon Storage as an extremely attractive acquisition opportunity for Inter Pipeline Fund", commented David Fesyk, President and Chief Executive Officer. "This is a very well-managed and competitively positioned business with a proven track record of generating stable and sustainable cash flow".

As a result of the Simon acquisition, Inter Pipeline's liquid storage capacity will increase from 1.3 million barrels to over 7.3 million barrels. Inter Pipeline's total enterprise value will grow by approximately 10% upon closing of the transaction.

Mr. Fesyk further commented, "We see excellent value in this acquisition, particularly relative to prices that have been paid for energy infrastructure assets in recent divestiture processes in North America. This is a very accretive transaction which supports our intended 4% increase in annual cash distributions paid to Inter Pipeline's unitholders".

"Simon Storage has strong business fundamentals, attractive growth opportunities and a highly experienced senior management team. This acquisition will be an excellent addition to our portfolio of long-life energy infrastructure assets".

Customer and Product Diversification

In total, Simon provides storage and product handling services to over 300 customers. Within this highly diversified customer base, no single customer accounted for more than 7% of revenues in 2004. Simon's largest petroleum customers include BP, ConocoPhillips, ChevronTexaco, Total, and Mabanaft. Major petrochemical customers include Dow, ExxonMobil, Dupont, Lucite, Shell, BASF, Lyondell and Celanese.

Simon is recognized as a leader in the bulk liquid storage sector, handling over 250 different products. Simon's facilities are primarily configured to handle, store and blend petroleum products including crude oil, refined products and alternative fuels such as ethanol, methanol and bio-diesel. Petrochemical and commodity chemical products include polymer intermediates, resins and inorganic chemicals. These products are broadly used in the manufacture of end-user materials such as paint, acrylic fibers and plastics.

Simon operates approximately 480 storage tanks with a combined capacity of over six million barrels. Utilization rates are very high, exceeding 90% of total capacity.

High Quality Cash Flow

Simon's cash flow is supported by a combination of high quality term storage contracts and throughput-based contracts. Approximately 78% of Simon's storage revenue is generated through the term lease of storage capacity for fixed fees. The remaining 22% of storage revenue is primarily based on volume-dependent movements of bulk liquids through Simon's storage facilities.

Current service contracts range in length up to 30 years, and many contain provisions for the flow-through of related operating costs. Contracts with major customers at Simon's three largest terminals have a remaining term averaging approximately five years. Upon expiry, contracts are typically renewed due to the high degree of integration with customer operations.

Simon has had ongoing commercial relationships with many of its core customers for over 20 years.

In all liquid storage and support service contracts Simon does not assume any commodity price exposure for handled and stored products.

Stable Financial Performance

In 2004, Simon generated revenues of GBP 47.5 million and EBITDA of GBP 13.9 million. Approximately 93% of EBITDA was derived from Simon's core storage operations. The remaining 7% was generated from Simon's trucking, engineering, training and facility management divisions.

Financial performance in recent years has been very stable. For the 3-year period from 2002 to 2004, Simon generated average annual revenue of GBP 48.8 million and average annual EBITDA of GBP 14.0 million. Simon's customer and product mix has also been relatively stable in recent years. Slight decreases in commodity chemical volumes have been largely offset by growth in alternative and renewable fuel volumes including bio-diesel.

Long Life Infrastructure Assets

The United Kingdom has one of the largest economies in Europe, including a well-established industrial sector, a stable political environment and a progressive regulatory regime to oversee the operation of energy infrastructure facilities.

Simon's large-scale commercial operations are highly integrated with the supply and distribution networks of several major domestic industries. In addition, Simon's facilities have benefited from increasing product flows with mainland Europe. Simon's five largest storage terminals, at Immingham East, Immingham West, Seal Sands, Riverside and Tyne are strategically located on the eastern seaboard of the United Kingdom. These facilities are in close proximity to Rotterdam, Netherlands and Antwerp, Belgium, two major deep water ports which serve as global market hubs for the distribution of petroleum and petrochemical products.

Strong integration with domestic energy industries and close proximity to mainland European markets support the long term sustainability and growth of Simon's storage business.

Retention of Management

A key consideration in Inter Pipeline's decision to proceed with the Simon acquisition was the ability to retain Simon's senior management group. Simon's five senior executives have an average of twenty-two years of direct experience with the business and will continue to be responsible of its ongoing operation and development.

"We are delighted that Simon's entire senior management group will be joining our organization," commented Mr. Fesyk. "This is an extremely capable, experienced and creative team. They intimately understand all aspects of the business and have done an excellent job managing its growth and evolution".

Acquisition Funding

Funding for the acquisition will be provided from an existing bank credit facility. Inter Pipeline will draw on its existing revolving credit facility to fund the full purchase price. This will bring Inter Pipeline's total debt to total capitalization ratio to 43% post acquisition.

Distribution Increase

Inter Pipeline intends to increase its monthly cash distributions to $0.065 per unit, or $0.78 per unit per year, contingent on closing the Simon acquisition and approval from the Board of Directors. This represents an increase of $0.03 per unit relative to Inter Pipeline's current annualized distribution rate of $0.75 per unit.

Subject to closing and Board approval, unitholders of record on December 31, 2005 will be eligible for the distribution increase, payable on or about January 16, 2006.

Conference Call

Inter Pipeline will hold a conference call on Friday, September 30, 2005 at 9:00 a.m. (Mountain Time) / 11:00 a.m. (Eastern Time) to discuss the Simon acquisition.

To participate in the conference call, please dial 877-888-4210 or 416-695-5261. A recording of the call will be available for replay until October 14, 2005, by dialing 888-509-0082 or 416-695-5275. Pass codes are not required.

Inter Pipeline Fund

Inter Pipeline is a major Canadian petroleum transportation and natural gas liquids extraction business based in Calgary, Alberta, Canada. Inter Pipeline operates approximately 4,900 kilometres of petroleum pipelines and 1.3 million barrels of storage in western Canada. These systems transport approximately 470,000 barrels per day of oil sands bitumen, conventional crude oil and gas plant condensate.

In addition, Inter Pipeline is one of North America's largest natural gas liquids extraction businesses with ownership in three major extraction facilities located in southern Alberta. These facilities are capable of processing in excess of 6 billion cubic feet of natural gas per day.

Inter Pipeline's Class A Units and convertible debentures trade on the Toronto Stock Exchange under the symbols IPL.UN and IPL.DB, respectively.

Eligible Investors

Only persons who are residents of Canada, or if partnerships, are Canadian partnerships, in each case for purposes of the Income Tax Act (Canada) are entitled to purchase and own Class A Units and debentures of Inter Pipeline.

Disclaimer

Certain information set forth above may contain forward-looking statements that involve risks and uncertainties. Such information, although considered reasonable by Inter Pipeline at the time of preparation, may later prove to be incorrect and actual results may differ materially from those anticipated in the statements made. For this purpose, any statements that are contained herein that are not statements of historical fact may be deemed to be forward-looking statements.

All dollar values are expressed in Canadian dollars unless otherwise noted.

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