Enbridge sets new course

Gary Park

for Petroleum News

Enbridge, the largest energy pipeline company in North America by market-cap, has taken its third bold step of 2018 to shrink its debt load and focus on long-distance pipelines.

In a C$4.3 billion deal, the Calgary-based company unloaded its Western Canadian natural gas processing plants and gathering pipelines to Brookfield Infrastructure and its partners.

The assets are spread across rich gas plays in the Montney, Peace River Arch, Horn River and Liard basins in northern British Columbia and Alberta.

Brookfield Chief Executive Officer Sam Pollock said the transaction is “strategically positioned for the continued development of the prolific Montney Basin,” encompassing 19 processing plants and liquids handling facilities, with a combined operating capacity of 3.3 billion cubic feet per day and more than 2,000 miles of gathering pipelines.

Enbridge CEO Al Monaco said the sale raises to C$7.5 billion his company’s non-core asset disposals this year, more than doubling its initial target of C$3 billion, taking a sizeable bite out of its C$61.2 billion long term debt, while helping it to advance C$22 billion in growth projects over the next two years, including its C$9 billion Line 3 replacement to serve U.S. Midwest refineries.

He said the sale “significantly advances our strategic priority of moving to a pure play regulated pipeline and utility business model.”

Kvisle: savvy transaction

“I think they just saw the size and scope of this gas gathering and processing business and they bid aggressively and won it. The Montney is an extraordinary development.”

As well, Kvisle said the transaction is significant for Canada’s LNG market, which he described as having both economic and environmental benefits.

Enbridge’s balance sheet has been a constant focus for analysts since the company forked over C$37 billion in 2016 to merge with Houston-based Spectra Energy.

Canaccord Genuity analyst David Galison said the asset sales should help Enbridge both pay down debt and fund its growth portfolio.

Since taking out Spectra, the company had engaged in multiple strategy changes by rearranging its core assets through an acceleration of its deleveraging process, he said.

Moody’s Investors Service Vice President Gavin MacFarlane said in a release that Enbridge’s “all-stock acquisition of its sponsored vehicles is credit positive ... and reduces near-term risks. We still see structural subordination across the corporate family but this is a big step in a credit-friendly transaction,” he said reinforcing the views of those who believe the pressure is on Enbridge to streamline its corporate structure.

Moody’s had downgraded the company’s credit rating seven months ago, saying its credit strengths were “offset by high leverage, a persistently large capital investment program and material corporate and capital structure complexity.”

Jennifer Rowland with Edward Jones said in an email that 2018 is a “big year of execution for Enbridge and they are indeed executing on key items that should restore investor confidence.”

- GARY PARK