How Enbridge plans to grow in the age of pipeline opposition — and connect Canadian oil to world markets
|National Post 10 Dec 2019 at 17:59|
CALGARY — At a time when building new pipelines has become increasingly challenging, North America’s largest pipeline company is looking to low-risk, conservative projects for growth.
“We’ve adapted to this environment… It’s not just about growth, we’re focused on expansion, extension and optimization of the existing base, which will be very capital efficient,” Enbridge Inc president and CEO Al Monaco said during the company’s investor day conference in New York.
Monaco said that Enbridge would take that low-risk approach for both new projects and for its balance sheet and finances. For example, Enbridge hiked its dividend 9.8 per cent but said it won’t commit to a share buyback program until the U.S. portion of its Line 3 pipeline replacement project is built.
Monaco described the company’s approach to shareholder payments as “returning capital in a sustainable way.”
Enbridge stock was trading a shade lower at $51.33 on Toronto, but near its 52-week high of $51.96.
Most of the projects identified by Enbridge are extensions or optimizations of existing pipelines or attempts to connect existing infrastructure to new facilities — including plans announced Monday to partner with Houston-based Enterprise Product Partners LP on a deep-water oil export terminal that would connect with its existing assets.
Calgary-based Enbridge — which had sought approvals to build the now-cancelled Northern Gateway pipeline to enable oil exports off the Canadian West Coast a few years ago — said it would participate in the construction of a deep-water port by Enterprise Product Partners’ Sea Port Oil Terminal near Houston capable of loading large crude carriers.
As part of that announcement, the company plans to build a new 15-million-barrels crude oil storage terminal in the area to store crude before its exported from the port.
In November, the company commenced called on oil companies to sign contracts to expand the Seaway Pipeline by 200,000 barrels per day.
Seaway is another joint-venture between Enterprise and Enbridge that moves oil from the storage hub of Cushing, Okla. to refineries and export terminals on the U.S. Gulf Coast.
Monaco said each of these three projects would allow the company to “enhance and extend” the company’s pipeline network “that stretches from western Canada, to the Midwest and through the Midcontinent and U.S. Gulf Coast.”
The three projects, taken together, will enable Enbridge to move Canadian oil to export markets through U.S. ports rather than building a new greenfield pipeline in Canada.
The oil export terminal, Jones Creek terminal and Seaway open season represents “the most material advancement yet in Enbridge’s U.S. Gulf Coast strategy,” CIBC Capital Markets analyst Robert Catellier said.
All in, Catellier estimated that Enbridge could spend US$2 billion on the oil export terminal and between US$500 million and US$1 billion to build out the oil terminal in phases.
“It is conceivable that the company will offer a full-path service to export markets,” Catellier noted.
Enbridge also identified a number of other projects that relied on the expansion or optimization of its existing system, including the expansion of its T-South natural gas pipeline in British Columbia and its pipelines serving U.S. LNG export terminals in Texas.
“We have no plans for corporate M&A at this time,” Enbridge chief financial officer Colin Gruending said Tuesday, adding the company remained committed to reducing its debt.
Pushed by analysts whether Enbridge would sell off assets to reduce debt, Gruending said the company considered most of its current portfolio to be “core” to its business.
Enbridge reported $60.9 billion in long-term debt at the end of the fourth quarter of this year, and the company’s leverage has been questioned in the past.
In 2018, Enbridge sold off parts of its Canadian natural gas business to Brookfield Asset Management for $4.3 billion dollars for debt reduction. While the company has said it’s not looking to sell other large assets, “We are open minded to it,” Gruending said.
“If the price was ridiculous, that might be tempting,” he said.
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