Project delays cloud Enbridge's profit growth
Canadian, U.S. pipelines in holding pattern
Enbridge Inc. announced better- t han- expected results for the fourth quarter, but analysts fretted over project deferrals, after the company said two of i ts pipeline projects faced rising costs and delays of at least two years.
The Calgary- based pipel i ne operator posted net profit of $ 378 million in the fourth quarter on record volumes, amid a depressed crude oil price environment.
“Despite one of the most dramatic downturns in the energy sector in decades, we delivered very strong adjusted earnings and cash flow growth for our shareholders that were in line with our expectations,” said Al Monaco, president and chief executive officer.
Enbridge has a $ 26- billion commercially secured capital program through 2019, of which $ 8 billion was funded and brought into service by the end of 2015. However, analysts are concerned about the growing list of projects facing delays.
“We view the quarter as neutral for the stock weighing off the good results and reiteration of 2016 guidance against what we see as continued market concerns about e xec uti on of t he funding plan along with the deferral of growth,” Robert Kwan, analyst at RBC Capital Markets said in a note to clients.
Two new Enbridge proj ects caught i n the regul atory quagmire i nclude a proposed $ 2. 6- bill i on Sand Piper project intended to transport oil f rom North Dakota to Minnesota, while a $ 7.5- billion Line 3 Replacement Project is planned to run from Hardisty, Alta. to Wisconsin on the U. S. side, through Minnesota.
The Minnesota Public Utilities Commission said recently it would require a final environmental impact statement before it can commence work on the route permitting process. The Calgary- based pipeline operator expects the new regulatory requirements for both projects to delay construction by two years to 2019 and deferment of $ 5 billion of capital.
Enbridge believes t he new requirements are “unprecedented and contrary” to Minnesota law, and it has filed petitions to overturn the regulations.
The company is also unlikely to begin work on the stalled $ 7.9- billion Northern Gateway any time soon. In June 2014, the federal government approved the Alberta- to-West Coast conduit with 209 conditions, but the project faces local and aboriginal opposition. The National Energy Board permit for the pipeline is set to expire if the company does not start construction by the end of 2016.
“Our ability to begin construction before the end of the year is really quite remote at this point,” Monaco said on an investor call, noting that the company will seek an extension to the deadline.
Despite t he challenge of building pipelines, Enbridge has been shipping additional Canadian barrels to North American refineries through its Line 9B reversal and Flanagan South and Seaway Twins expansions.
“We’re turning away barrels from the system,” Monaco said, noting that an additional 800,000 barrels per day of oil is expected to come on- stream till 2019.
“The upshot of all of that is that we see ex- Alberta pipe capacity to be constrained for the next few years.”
However, t he spate of cancelled projects in the oilsands has compelled the company t o broaden its horizon.
“It is difficult to determine how and where producers will make decisions going f orward, 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 oilsands post- 2019,” said Guy Jarvis, head of liquid pipelines.