Enbridge Prepares Pipeline Expansions as Profit Falls

Enbridge Inc. (ENB), the largest transporter of Canadian crude to the U.S., began a series of pipeline projects in the second quarter, part of an C$8 billion ($7.9 billion) plan to boost shipments of Canadian and Bakken oil to new markets.

Enbridge has enough commercial support to proceed with plans to expand its Toledo pipeline in the U.S. and re-reverse Line 9 in Canada, the Calgary-based company said in a statement today. It also expects to go forward with plans to expand lines that connect the U.S. with Alberta and Ontario, helping to ship more oil-sands output and unclog bottlenecks caused by rising North American crude output.

“Our eastern access projects complement our previously announced Gulf Coast access projects in expanding access to new markets in North America for growing production from western Canada and the Bakken,” Chairman and Chief Executive Officer Pat Daniel said in the statement.

Enbridge owns and operates Canada’s largest oil pipeline network spanning 24,738 kilometers (15,372 miles) that ship 2.3 million barrels of crude and liquids a day. Increasing production in Canada and the Bakken formation in North Dakota and Wyoming require more pipeline investment and Daniel expects a 10 percent increase in adjusted earnings per share “through the middle of this decade and beyond.”

The expansion plans come after a series of spills from Enbridge pipelines. The most recent spill was of 1,200 barrels near Grand Marsh, Wisconsin, on July 27. Enbridge faces a record $3.7 million fine from the U.S. Pipeline and Hazardous Materials Safety Administration for a 2010 rupture that spilled more than 20,000 barrels of oil into a tributary of the Kalamazoo River in Michigan.

Northern Gateway

Enbridge said on July 20 it will spend as much as C$500 million more to use thicker steel and increase monitoring on its proposed Northern Gateway pipeline, in response to criticism about the risks of an oil spill. The 1,177-kilometer, C$5.5 billion conduit would traverse the Rocky Mountains and end on the Pacific Coast of British Columbia, allowing for oil-sands exports.

“The trend is declining in terms of our leaks,” Enbridge President Al Monaco said during an earnings conference call today with analysts today. “We’re at about half of the rate of industry in terms of that benchmark.”

Enbridge second-quarter net income fell 96 percent to C$11 million, or 1 cent a share, from C$302 million, or 25 cents, a year earlier, the company said in the statement. Excluding one- time items, per-share profit was 2 cents less than the 38-cent average of 14 analysts’ estimates compiled by Bloomberg.

The decline was caused in part by losses on financial derivatives used to manage currency, commodity and interest rate volatility, the company said.

Enbridge fell 1.5 percent to C$39.90 at the close in Toronto. The shares have gained 4.8 percent this year, beating the 0.6 percent decline for the 64-member S&P/TSX Energy Index. (STENRS) The stock has 12 buy ratings, four holds and two sells.

To contact the reporters on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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