Line 9 delays hamper Enbridge Q2 earnings
Cost of pipeline reversal soars to $800 million
Despite beating analysts’ expectations, Enbridge Inc.’s secondquarter earnings were hampered by delays to its Line 9 pipe reversal and a $440-million writedown on its goodwill.
“The delay in receiving leave to open our Line 9 reversal is an obvious headwind as we planned for it to open at the beginning of the year,” Enbridge chief financial officer John Whelen said on the company’s second-quarter earnings call Friday.
Enbridge posted earnings of $577 million in the second quarter, which is down roughly 24 per cent from the $756 million it posted in the same period last year when benchmark oil prices were twice their current value.
The company’s results were partly affected by a $440-million writedown on the goodwill of one of Enbridge’s subsidiaries, of which $167 million is attributable to the parent company.
RBC Capital Markets analyst Robert Kwan said in a research note there were “fears in the market that Enbridge would either miss 2015 (earnings per share) guidance, or at least come in at the bottom end of the range.”
The earnings beat, therefore, is being viewed as a pleasant surprise.
Enbridge, Canada’s largest pipeline company, has been seeking National Energy Board approval to reverse the flow of liquids on a section of its Line 9 pipeline between North Westover, Ontario and Montreal but has seen the line’s in-service date delayed twice.
On Thursday, Suncor Energy Inc. president and CEO Steve Williams said in a conference call that he was “disappointed by the NEB process” because it has taken “too long.”
Suncor owns a refinery in Montreal, which currently processes imported oil. It wants to tie that facility into its oilsands operations using Line 9.
Enbridge announced Friday that it filed plans to satisfy the NEB’s most recent conditions, that it conduct hydrostatic tests on segments of the line, on July 23 and that the NEB had approved those plans this week.
“Our best estimate is that we can complete the tests by the end of the year,” Enbridge CEO Al Monaco said during the call, adding that the line would open following an NEB review of the test results.
As a result of the hydrostatic testing requirement, FirstEnergy Capital Corp. analyst Steven Paget said in a report Friday the cost of the project had jumped by $100 million to $800 million.
Monaco also said Enbridge wouldn’t undertake another largescale drop down of its assets to its subsidiary companies like it did on June 19, when it transferred $30-billion worth of assets into Enbridge Income Fund for tax purposes.
“At this time, in light of the weakening market conditions, it is more prudent for us to approach the drop downs on a selective basis rather than a large scale program like we did with the Enbridge Income Fund,” Monaco said.
Monaco said Enbridge still intends to drop assets held by the parent, including its U.S. liquids pipelines, into subsidiaries but it would likely do so in a series of smaller moves timed with the market.