As CEO Al Monaco shrinks to-do list, Enbridge starting to look like its old self

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Al Monaco is nothing if not methodical.

It was just a few months ago that Enbridge’s chief executive officer was up against a daunting list of tasks aimed at counteracting worries that had enveloped the pipeline company, which had long been a bulwark against market uncertainty.

After Enbridge’s $37-billion takeover of Spectra Energy in 2016, debt was too high, investors fretted about their dividends and the organization had taken on a Rube Goldberg-like complexity, with multiple business lines and publicly traded subsidiaries.

Late last year, Moody’s Investors Service Inc. downgraded Enbridge’s debt to one notch above junk status, warning that its plans to reduce leverage would be slow to deliver results as it prepared to plow $22-billion into new projects.

Adding to the angst was the risk that the company’s biggest-ever construction objective – the replacement of the Line 3 crude-oil conduit to the U.S. Midwest from Alberta – could be laid low by Minnesota regulators in an age of anti-pipeline fervour.

With the stock price falling, Mr. Monaco acknowledged in March that the company was unaccustomed being the target of such skepticism among investors. Enbridge even attracted short-sellers who painted doomsday scenarios.

But a few short months later, that is dissipating as the to-do list gets whittled down and Enbridge starts looking like its old self.

On Wednesday, it announced it is selling its Canadian natural-gas-gathering and processing assets to Brookfield Infrastructure Partners LP for $4.3-billion. That brings its asset-sale tally to $7.5-billion, more than double the target it set for all of 2018 as it trims the business to focus on pipelines and utilities.

It follows two big deals in May. The company sold a 49-per-cent interest in its green-energy assets to Canada Pension Plan Investment Board, and its Midcoast Operating LP unit in the southern United States to ArcLight Capital Partners LLC.

The transactions show a keen interest in the assets among private-equity-backed infrastructure operators. They also remove a lot of the risk that Enbridge might embark on another big share issue or start tinkering with the outlook for the dividend as it deals with long-term debt that stood at $61.1-billion on March 31.

The relief has come in the form of a bump in the stock price. Since dropping to a six-year low of $37.68 in April, the shares have rebounded 25 per cent to more than $47.

It’s not just asset sales that have provided relief to investors. They’ve welcomed the company’s plans, announced in May, to buy back all of its so-called “sponsored vehicles,” the income funds and master limited partnerships it had set up over the years as alternative financing sources for its projects, for $11.4-billion in stock.

Enbridge was criticized after the Spectra takeover because the four subsidiaries – each with its own board of directors and stock listing – made a puzzle of evaluating the parent company’s business and prospects. Meanwhile, U.S. regulators scrapped the tax advantages of those that held assets in the United States. Essentially, they had outlived their usefulness.

Then, last week, the Minnesota Public Utilities Commission delivered perhaps the biggest win of Enbridge’s rebuilding year when it approved the $9-billion pipeline replacement, its biggest single project expenditure. The regulator even endorsed all but a sliver of Enbridge’s preferred route. The current goal of having the new Line 3 in operation is 2020.

In a previous era, a green light for the 1,660-kilometre line would have been all but assured, especially to replace decades-old leak-prone pipe with brand new steel. But Mr. Monaco knows well that a pipeline CEO cannot take such things for granted any more, given the regulatory and court delays that seem to hit nearly every project. Recall the heated protests over the company’s reversal of Line 9 between Sarnia, Ont., and Montreal; that line already existed.

This remains a real risk, as controlling costs and the company’s reputation become paramount. Still, the financial fixes leave the company much better prepared for that, and what could be a period of uncertainty in the pipeline and utility market as interest rates rise, prompting investors to take a shine to the more secure bond market.