‘Unprecedented’ new U.S. regulatory requirements will delay Enbridge Inc pipeline projects and hike costs

Enbridge Inc. announced better-than-expected results for your fourth quarter, but analysts fretted over project deferrals, after the company said a couple of its pipeline projects faced rising costs and delays of at least 2 yrs.

The Calgary-based pipeline operator posted net gain of $378 million within the fourth quarter on record volumes, amid a depressed oil price environment.

“Despite probably the most dramatic downturns within the energy sector in decades, we delivered very strong adjusted earnings and funds flow growth for our shareholders that were in line with our expectations,” said Al Monaco, president and chief executive officer.

Enbridge includes a $26 billion commercially secured capital program through 2019, which $8 billion was funded and brought into service by the end of 2015. However, analysts are worried concerning the growing listing of projects facing delays.

“We see the quarter as neutral for that stock weighing from the great results and reiteration of 2016 guidance against what we see as continued market concerns about execution of the funding plan combined with the deferral of growth,” Robert Kwan, analyst at RBC Capital Markets said inside a note to clients.

Two new Enbridge projects caught in the regulatory quagmire include a proposed $2.6 billion Sand Piper project intended to transport oil from North Dakota to Minnesota, while a $7.5 billion Line 3 Replacement Project is planned to operate from Hardisty, Alta. to Wisconsin around the U.S. side, through Minnesota.

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The Minnesota Public Utilities Commission said recently it would need a final environmental impact statement before it can commence focus on the path permitting process. The Calgary-based pipeline operator expects the brand new regulatory requirements for both projects to delay construction by two years to 2019 and deferment of $5 billion of capital.

Enbridge believes the new requirements are “unprecedented and contrary” to Minnesota law, and contains filed petitions to overturn the regulations.

The clients are also unlikely to start focus on the stalled $7.9 billion Northern Gateway anytime soon. In June 2014, the us government approved the Alberta-to-West Coast conduit with 209 conditions, however the project faces local and aboriginal opposition. The nation’s Energy Board permit for the pipeline is set to expire when the company doesn’t start construction by the end of 2016.

“Our capability to begin construction prior to the end of the year is really quite remote at this point,” Monaco said with an investor call, noting the company will seek extra time towards the deadline.

Despite the challenge of building pipelines, Enbridge continues to be shipping additional Canadian barrels to United states refineries through its Line 9B reversal and Flanagan South and Seaway Twins expansions.

“We’re turning away barrels in the system,” Monaco said, noting that the additional 800,000 barrels per day of oil is expected to come on-stream till 2019.

“The upshot famous that’s that we see ex-Alberta pipe ability to be constrained for the next few years.”

However, the spate of cancelled projects in the oilsands has compelled the company to broaden its horizon.

“It is tough to determine how and where producers will make decisions moving forward, and that’s why when we look at our strategy it falls back to setting up a listing of opportunities for Enbridge that are not dependent on the oilsands post 2019,” Guy Jarvis, head of liquid pipelines said.

Financial Post

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