DBRS Morningstar Places Northern Courier Pipeline Limited Partnership Under Review with Negative Implications

DBRS Limited (DBRS Morningstar) placed the A (low) Issuer Rating and Senior Notes rating of Northern Courier Pipeline Limited Partnership (NCPLP) Under Review with Negative Implications. This directly follows DBRS Morningstar’s decision to place all its rated North American oil and gas issuers, including Suncor Energy Inc. (Suncor; rated A (low) by DBRS Morningstar), Under Review with Negative Implications in response to the recent extreme price declines and heightened volatility in the crude oil and petroleum-producing markets, as well as uncertainty regarding the length of time for which these conditions will persist.

Suncor is a 54.1% partner in Fort Hills Energy LP (FHELP or the Shipper), the counterparty to the Pipeline Transportation Services Agreement and the Tank Services Agreement (together, the TSAs) between FHELP and NCPLP. Following the in-service date in November 2017, NCPLP has been collecting monthly toll revenue under a cost-of-service (COS) model as specified in the TSAs. Toll revenue includes a flow-through of NCPLP’s operating costs as well as payments for debt service and distributions to NCPLP’s shareholders. The COS model eliminates NCPLP’s exposure to changes in transported volume or other market factors and passes on virtually all operating and maintenance costs, including sustaining capital expenditures, as well as supply risk of bitumen and diluent. The primary rating constraint, therefore, is the Shipper’s counterparty risk, which DBRS Morningstar views as reflective of the ratings of the three shareholders in FHELP—Suncor, Total E&P Canada (24.6%), and Teck Resources Limited (21.3%; rated BBB with a Stable trend by DBRS Morningstar). Under the terms of the FHELP partnership agreement, each shareholder is responsible for its proportionate share of costs and liabilities, on a several and separate basis.

Because the ratings are essentially capped by FHELP’s counterparty risk, any change in either its partner composition or the ratings of each partner could result in a change to the rating cap, absent any mitigating or altered circumstances or provisions.

The Under Review with Negative Implications status on Suncor is generally resolved with a rating action within three months. In the absence of other factors, this should also result in a resolution of the Issuer’s status. However, if heightened market uncertainty and volatility persists, DBRS Morningstar may extend Suncor’s Under Review status for a longer period of time. In such a case, the Issuer’s Under Review status may also be similarly extended.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
The principal methodology is Rating Project Finance, which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577