Canada's Enbridge will invest $6.2 billion in major pipeline expansion

Enbridge Inc. [TSX: ENB] [NYSE: ENB] said Dec. 7 that it has received shipper support to proceed with a $6.2 billion program to expand access to markets for growing volumes of North Dakota and western Canada light oil production. The Light Oil Market Access Program will provide increased pipeline capacity on Enbridge’s North Dakota regional system; further expand capacity on the US mainline system; enhance Canadian mainline terminal capability; upsize the Eastern Access Program; and provide additional access to US Midwestern refineries.

The program will provide access from the Enbridge system to attractive refinery markets in Ontario, Quebec, and the US Midwest for an additional 400,000 barrels per day (bpd) of light oil.

The program includes a number of individual projects that will be undertaken by Enbridge subsidiaries or affiliates including Enbridge Energy Partners LP [NYSE: EEP]. Funding of the program will be shared between Enbridge and the partnership through arrangements intended to enable Enbridge Partners to benefit from a significant investment opportunity within the limits of its funding capability. The partnership’s investment in the $6.2 billion program is expected to be approximately $3.4 billion.

“This $6.2 billion investment rounds out our suite of major crude oil new market access initiatives for North American markets,” said Al Monaco, president and CEO of Enbridge Inc. “It follows on the heels of our $2.7 billion Eastern Access Program announced in May, and our $5.8 billion upsized US Gulf Coast Access Program announced in March, including a number of projects adding capacity to the existing mainline system announced in May. These market access initiatives reflect changing North American supply and demand fundamentals and will create significant value for our customers. This latest investment meets the same stringent criteria applicable to all Enbridge growth projects.”

The Light Oil Market Access Program responds to significant recent developments with respect to supply of light oil from US north central formations and western Canada, as well as refinery demand in the US Midwest and eastern Canada. On the supply side, production from the Bakken formation centered in North Dakota has grown from 200,000 bpd to 700,000 bpd in the last five years with potential to expand to 1,200,000 bpd or more in the next five years, if transportation access to refinery markets is available.

Additional growth in light crude production of 100,000 bpd or more is also anticipated from the application of the latest recovery technologies to the Cardium and Viking formations in the Canadian province of Alberta. Supply from these areas has become increasingly attractive to refineries in the US Midwest and eastern Canada compared to much more costly alternative sources.

The individual projects within the program are targeted to be available for service at varying dates from 2014 to early 2016. Shippers have provided support for each of the individual projects either in the form of capacity commitments or support for the regulatory approval and commercial framework of the North Dakota and Mainline system projects, including support for the regulatory approval of the North Dakota expansion commercial terms pending before the Federal Energy Regulatory Committee (FERC). The terms approved by shippers for the US mainline system expansion projects include surcharges to be added to Enbridge's Competitive Tolling Settlement (CTS) international joint toll. The program will require various regulatory approvals and permits.

“We stand now with a total of $26 billion of commercially secured attractive growth investments, which are planned to be in service between 2012 and 2016, providing us with confidence that we will achieve an average annual growth rate in earnings per share exceeding 10% through that year,” said Monaco. “With a commercial model for much of this capital, which provides increasing returns over time, we are also on track to extend our industry-leading growth rate beyond 2016.

“Effective execution of this growth program is a critical priority and we are well positioned with the required human and financial resources. Our major projects department remains on schedule and on budget for substantially all projects currently under development. On an enterprise-wide basis, we have raised more than $6 billion of capital markets funding to date in 2012, and have expanded our general purpose bank credit facilities to more than $12 billion.”

Enbridge is current in stakeholder consultations for some of these projects and will soon begin consulting with landowners and other stakeholders on other projects in earlier stages of planning.

“Our highest priority remains the safe, reliable, and environmentally responsible construction and operation of our energy infrastructure assets, and our team remains focused on implementing our Operational Risk Management Plan and demonstrating an industry-leading standard of operating performance,” said Monaco.

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