In the fourth quarter, funds from operations were $100.9 million, an increase of $10.8 million or 12% over fourth quarter 2011 results. Inter Pipeline's oil sands transportation segment set a new quarterly record for cash flow at $46.2 million. Fourth quarter funds from operations from the NGL extraction, conventional oil pipelines and bulk liquid storage businesses were $38.7 million, $38.7 million and $20.0 million, respectively. Corporate costs were $42.7 million in the quarter.
Distributions declared to unitholders increased to $285.2 million or $1.055 per unit in 2012, compared to $251.7 million or $0.9675 per unit declared in 2011. Distributions were higher due to an increase in the number of units outstanding and Inter Pipeline's decision to increase annual distributions by $0.09 per unit effective with payments in January 2012. Despite a higher distribution rate, Inter Pipeline's payout ratio remained conservative at 67.5% before sustaining capital and 74.6% after considering sustaining capital expenditures of $40.1 million in 2012.
In the fourth quarter, Inter Pipeline distributed $73.4 million or $0.2675 per unit, representing a payout ratio of 72.8% before sustaining capital and 86.0% after sustaining capital.
Oil Sands Transportation
In 2012, Inter Pipeline achieved record performances in the oil sands transportation business segment and announced a major, multi-year expansion program. Throughput levels on Inter Pipeline's oil sands transportation systems averaged 812,600 b/d during the year, an increase of 26,400 b/d over 2011 levels as both the Cold Lake and Corridor pipeline systems set annual records. Cash flow in the segment set a new yearly record, with funds from operations totaling $172.8 million.
In the fourth quarter, throughput volumes in the oil sands transportation segment reached 838,200 b/d. Cold Lake system volumes averaged 529,400 b/d and Corridor volumes averaged 308,800 b/d. Both systems recorded year over year gains due to strong production from the oil sands operations of Imperial, Cenovus and Canadian Natural Resources on the Cold Lake system, and increased production on the Corridor system from Shell, Chevron and Marathon's Athabasca Oil Sands Project.
Inter Pipeline's third oil sands pipeline system, the Polaris diluent transportation system, entered into commercial service in 2012. Initial development of Polaris is supported by long-term contracts to transport diluent to Imperial's Kearl oil sands project and to Husky Energy's Sunrise oil sands project. Together, these projects are expected to generate approximately $63 million in incremental EBITDA once fully in service. In late 2012 Inter Pipeline announced a third Polaris contract, a 5-year agreement to transport 10,000 b/d of diluent for Suncor Energy. This agreement will add a further $10 million to EBITDA annually for the life of the contract, at a capital cost of approximately $10 million. Inter Pipeline expects that all three contracts will be contributing to cash flow in 2013.
In 2012, Inter Pipeline announced a $2.2 billion development plan for the Cold Lake and Polaris pipeline systems that will expand and integrate transportation services across both systems. Anchoring these developments is an arrangement to provide bitumen blend and diluent transportation services to the Foster Creek, Christina Lake and Narrows Lake projects jointly owned by ConocoPhillips and Cenovus Energy. These development plans involve the construction of approximately 840 kilometres of new pipeline and seven new pump stations. Inter Pipeline intends to provide approximately 850,000 b/d of firm bitumen blend and diluent capacity to the three oil sands projects. Subject to the execution of a binding transportation agreement, new facilities are planned to be in service for the Foster Creek and Christina Lake projects in phases beginning in mid-2014, and for the Narrows Lake project in 2017. Inter Pipeline expects to finalize the binding transportation agreement in the first quarter of 2013.
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