By Jim Stott
OGJ Online Calgary Correspondent
Calgary -- Profitable growth through acquisitions and expansion of existing operations sums up the broad game plan Patrick Daniel has for Enbridge Inc. over the next 5 years.
Daniel, who took over Jan. 1 as president and CEO, said the $600 million acquisition of Houston-based Midcoast Energy Resources Inc. is a launch platform for further growth in the US (OGJ Online, Mar. 17, 2001).
Enbridge operates the world's longest crude and liquids pipeline from western Canada to markets in the eastern US and Canada and the only crude line in the Canadian Arctic. It also has interests in the Alliance and Vector pipeline systems and in the largest gas distributors in Ontario and Quebec.
But Daniel said the $6 billion (Can.) company must expand its geographical footprint and scale to compete with North American gas industry giants.
"We could afford to double twice in the next 5 years and that would just nicely put us in the top 10 in North America," Daniel said. "That is aggressive but it can be done."
Daniel, a 30-year veteran of Enbridge and its predecessors, said the company would be looking to the US market for acquisitions, assuming that they can be done profitably. He said it would not seek growth for growth's sake.
"The reference point I use for that is the acquisition of Consumers Gas (distributorship) in Ontario in 1993/1994. That basically doubled the size of the company and moved it from being just a liquids pipeline into the gas end of the business," Daniel said.
"It gave us opportunities for growth into the Alliance and Vector (Chicago to Dawn, Ont.) pipelines (Enbridge is a major interest holder in both) and in the proposed Cartier gas pipeline from the East Coast offshore to Ontario and Quebec."
Daniel said the Midcoast deal gives Enbridge the opportunity to expand into the US Gulf Coast and could also serve as a template for additional acquisitions.
"We aren't going to blow our brains out going out spending the money just for the sake of spending it," Daniel said. "But we feel comfortable with our ability to finance acquisitions of the size of Midcoast. Commodity prices and business activity are important. But in addition to cash flow we can rely on the debt and equity market to help finance these initiatives as well."
Daniel said the general profile of acquisitions Enbridge will seek is similar to Midcoast -- a company with gas transmission, gas feeder pipelines, and end-user lines that are direct-connected into gas-fired power generation and specific local distribution companies.
"The main target is on the gas transmission side, but because we have expertise in gas distribution, liquids pipelines and terminal operations any of these areas would fit very well," Daniel said.
In addition to expansion in the US, Daniel sees significant growth in its core liquids pipelining business -- much of that tied to the rapid expansion of oil sands and heavy oil production underway in northern Alberta. The company received regulatory approval May 15 for the second phase of an expansion of its Terrace pipeline expansion project on its mainline system. Phase 2 will add 76 miles of 36-in. line in Alberta and Saskatchewan and 43,400 b/d of capacity by late 2001. Total capacity will be 1.84 million b/d.
The company is planning a third phase for late 2002 or early 2003 to add 120 miles of line and 165,000 b/d capacity to the Lakehead System between Clearbrook, Minn., and Superior, Wis.
"Assuming that crude prices remain in excess of $20/bbl West Texas Intermediate, or even if there are brief excursions below that, we expect fairly strong growth in the liquids pipeline business. That and the very rapid growth of our gas distribution utility in Ontario will provide us with double-digit earnings per share growth."
Daniel also sees potential for growth in proposals to pipeline gas from Alaska and the Canadian Arctic -- where he expects Alaskan North Slope gas to move before Mackenzie Delta gas. He said Enbridge is in touch with all the players and wants a piece of any Arctic pipeline development.
He notes that Enbridge has Arctic pipelining experience as operator of the Norman Wells oil pipeline from the Mackenzie Valley to northern Alberta. And he said the Alliance gas and liquids pipeline from British Columbia to Chicago is considering an expansion from 1.3 bcfd to pick up Alaska gas in Alberta and move it to US markets. Enbridge has a 21% interest in Alliance.
On the other side of the continent, Enbridge and Gaz Metropolitain LP are planning the $270-million, 163-mile Cartier Pipeline to move gas from offshore Nova Scotia into Ontario and Quebec. Enbridge owns 32% of Gaz Metropolitain.
The Cartier line would be connected to offshore gas by a separate pipeline to be built in New Brunswick, running from the existing Maritimes and Northeast Pipeline north to the New Brunswick-Quebec border. M&NE would build and own this line.
Enbridge also has several interests in Latin America where it operates and has a 24.7% interest in the OCENSA crude oil line in Colombia. It also has a long-term agreement to operate the Jose crude storage and marine terminal in Venezuela.
Daniel said Enbridge will not be looking for aggressive growth in Latin America, but Mexico may be an area of focus. The company is working on plans for a gas line into Monterrey, Mexico, and a gas and LNG storage facility in southern Mexico.
