Enbridge's year of 'humility' after pipeline leaks

Share

A year fraught with problems has taught Enbridge Inc. "humility," its chief executive officer has acknowledged as the pipeline company presses ahead with an ambitious growth agenda.

"I think it's fair to characterize 2010 as the year of accomplishment and also as a year of humility," Pat Daniel told investors on Thursday, as the company announced fourth-quarter results that came in below market expectations.

"We were able to place into service a very large suite of growth projects," he said. "On the other hand, we're not proud of the pipeline leak that we experienced - the most significant in our company's history."

Last year saw Enbridge secure more than $4-billion in new projects and a 13-per-cent growth in earnings per share, which came in at $2.66. But it also saw two major spills in Michigan and Illinois that caused painful crude backups in Canada, sullied the company's public image and cost it $125-million in cleanup costs so far.

Mr. Daniel, however, said a long series of maintenance-related disruptions that have trailed the ruptures are nearing an end. The company plans two more periods of downtime - one next week, and one two weeks later - and a small halt to service while it connects a new river-crossing pipe.

But "we feel now that we're largely through" the repairs, which have engaged 65 crews digging and fixing 400 locations over the past few months, Mr. Daniel said.

"We feel we've largely resolved [the breakdowns]and got the bottleneck of crude oil moved through the system now."

Mr. Daniel said the company's offer to B.C. native groups of a 10-per-cent equity stake in its controversial proposed $5.5-billion Northern Gateway pipeline, which would bring Alberta crude to the Pacific, has been "well-received" by "the majority" of groups along the way.

That equity stake will come at "no cost to the aboriginal groups," he said.

Problems with its pipeline system helped contribute to lower-than-expected profit for the company, which earned $238-million, or 64 cents per share, in the fourth quarter. Analysts had, on average, expected 69 cents per share, and markets responded by knocking down Enbridge shares Thursday by 83 cents, or 1.42 per cent.

Analysts, however, said the company is likely to recover most of its spill spending from insurance, and played down the quarterly miss. Among the earnings issues was weakness in its Gulf of Mexico natural gas pipeline business, where fallout from the BP spill has taken a financial toll.

But Enbridge infrastructure in the Gulf remains "very well-suited for a lot of the future finds that have already been made," said Lanny Pendill, an analyst with Edward Jones.

"So the long-term outlook hasn't changed at all. You're looking at a pretty low-risk utility that's got ample growth opportunities that are supported by a strong financial position."

And Enbridge remains on track to reach its overarching goal of 10-per-cent annual growth until 2015, said BMO Nesbitt Burns analyst Carl Kirst. He pointed to the nearly $400-million in new projects that Enbridge has already announced in 2011.

"These are the kinds of projects that should continue to not only buttress but build their earnings growth going forward," he said.

But, he added, the company's "torrid" pace - which saw 25-per-cent growth in 2009 and 13-per-cent last year, is likely to slow.

"We're going to have a little bit of a slowdown of sub-10-per-cent growth in 2011," Mr. Kirst said.

But the company has, he said, managed to emerge remarkably unscathed from the spills that beset it in 2010, as evidenced by the new pipelines it continues to build.

"What's clear is that from a commercial standpoint, their reputation was not tarnished in the minds of shippers," he said. "So from a sense of being able to continue to sign new deals and continue to deliver on your earnings growth, that was very much key."

Enbridge (ENB) Close: $57.68, down 83¢