Enbridge Looks Beyond Oil Sands as Rout Casts Doubts on Projects

  • Company looking at power generation and energy services
  • Pipeline operator has $13 billion of projects through 2019

Enbridge Inc. is looking for ways to reduce its dependence on oil-sands growth as a prolonged crude price collapse casts doubts over the future of projects in Western Canada.

The pipeline company will seek to shift its focus after the current wave of projects draws to a close near the end of the decade, said Guy Jarvis, who heads the company’s pipeline operations, during a conference call on Friday. Enbridge, which has C$18 billion ($13 billion) of projects with secured customers through 2019, is also looking at power generation and energy services as areas for growth.

“It is difficult to determine how and where producers will make decisions going forward, which is why when we look at our strategy it falls back to setting up an inventory of opportunities for Enbridge that aren’t reliant on the oil sands post 2019,” Jarvis said.

Enbridge has largely escaped the impact of the market rout that has hurt its customers for more than a year, helped by long-term shipping contracts, increasing volumes as current oil-sands projects are completed and little direct exposure to crude pricing. Profit in the fourth quarter beat expectations as the company ran its main oil conduits at full capacity.

Net income was C$378 million, or 44 cents a share, compared with C$88 million, or 10 cents, a year earlier, the Calgary-based company said Friday in a statement. Excluding one-time items, per-share profit exceeded by 5 cents the 53-cent average of 13 analysts’ estimates compiled by Bloomberg.

‘Stronger Performance’

"Our fourth quarter actually came in a bit stronger than we anticipated late last year due to stronger performance from the Canadian liquids business in December and lower overall operating and administrative costs,” Chief Executive Officer Al Monaco said in a statement on Friday.

Enbridge’s shares fell 2 percent to C$43.19 at 1:17 p.m. in Toronto as crude slipped below $30 a barrel and stocks worldwide trimmed weekly gains.

The pipeline operator’s customers including Canadian crude producers Suncor Energy Inc., Imperial Oil Ltd. and Cenovus Energy Inc. have suffered from losses or declining profit in the fourth quarter as lower oil prices have thwarted some expansion plans and resulted in spending and job cuts. Cenovus had its debt rating cut to junk by Moody’s Investors Service Thursday, along with Encana Corp. Enbridge said it will require additional security from shippers whose debt fall below non-investment grade status.

Enbridge is focusing on expanding “low-cost, incremental” projects like twinning existing pipelines to provide producers with new transportation capacity as they struggle with low crude prices, Monaco told investors in October.

Line 3

The company’s C$7.5 billion Line 3 replacement is the largest project. The completion of that project and the Sandpiper pipeline project in Minnesota may be delayed until early 2019 after the state required the company was required to complete an environmental impact statement.

The Northern Gateway pipeline, a 525,000 barrel per day proposed conduit from Alberta to the north coast of British Columbia designed to carry growing volumes of bitumen to Asian markets, will likely require an extension for its permit from Canadian authorities, Monaco said during the conference call. A construction start before the permit expires this year is “really quite remote,” he added.

“We’re not looking at our watch here on the project,” Monaco said. “This will take more time to develop. If you look at the environment we’re in, vis-a-vis the production profile, there’s not as much panic.”

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