Oil Pipelines

Financial Analysis

Keystone is a 3,467 km (2,154 miles) wholly owned and operated crude oil pipeline extending from Hardisty, Alberta, to U.S. markets at Wood River and Patoka in Illinois, and from Steele City, Nebraska to Cushing, Oklahoma. The Company plans to expand and extend the existing system through Keystone XL which includes the construction of a new crude oil pipeline from Cushing, Oklahoma to the U.S. Gulf Coast, the addition of operational storage facilities at Hardisty, Alberta and the construction of a new crude oil pipeline from Hardisty, Alberta to Steele City, Nebraska. The expanded oil pipeline system is collectively referred to as Keystone. The completion of Keystone XL is expected to increase total system capacity to approximately 1.4 million bbl/d.

The Marketlink projects would transport crude oil sourced from U.S. basins to refining markets in the Cushing, Oklahoma region and the U.S. Gulf Coast on facilities that form part of Keystone XL. The proposed Bakken Marketlink project would transport U.S. crude oil from Baker, Montana to Cushing and the proposed Cushing Marketlink project would transport crude oil from Cushing to Port Arthur and Houston, Texas.

Oil Pipelines Comparable EBIT for the year ended 2011 was $457 million. EBITDA from Keystone is primarily generated from payments received under long-term commercial arrangements for committed capacity that are not dependent on actual throughput. Uncontracted capacity is offered to the market on a spot basis and, when capacity is available, provides opportunities to generate incremental EBITDA. In February 2011, the Company began recording EBITDA for the Wood River/Patoka and Cushing Extension sections.

Although the Wood River/Patoka section commenced commercial operations in June 2010, cash flows other than general, administrative and support costs were capitalized until February 2011. As a condition of the NEB's approval to begin operations, the Wood River/Patoka section operated at a reduced maximum operating pressure (MOP) on the Canadian conversion segment of the pipeline, which did not allow the pipeline to run at design pressure and reduced throughput capacity below the initial nominal capacity of 435,000 bbl/d. After additional in-line inspections were completed, the NEB removed the MOP restriction in December 2010 and the required operational modifications were completed in late January 2011 allowing the system to operate at its design pressure and throughput capacity.

Operating Statistics

Year ended December 31(1) 2011
Delivery volumes (thousands of barrels)(2)  
Total 137,384
Average 411
(1) Results reflect eleven months of operations.
(2) Delivery volumes reflect physical deliveries.