Enbridge Inc. is planning a large new pipeline out of fast-growing northern U.S. oilfields as it builds $30-billion in new projects over the next five years.
The massive spending plans will drive an annual 12 per cent rise in earnings per share over those five years, beating earlier expectations of 10 per cent growth, the energy and pipeline company said Wednesday. Enbridge also promised shareholders will see those gains reflected in distributions.
"Even if dividend growth just parallels earnings growth, you're going to see 11 to 15 per cent dividend growth without needing to move our payout ratio past 70 per cent of earnings," chief financial officer Richard Bird said.
The company's slate of projects will see it take advantage of a broad desire among oil producers to build new pipe that can alleviate price discounts arising amid a glut of supply in both Canada and the U.S. On average in 2012, the price of heavy oil in Alberta, for example, has lagged Mexican heavy crude by $27 (U.S.) a barrel.
That has created an opportunity to substantially reconfigure the continent's pipeline networks – a fact that promises lucrative returns for Enbridge.
"North America is in the process of being re-piped, both in terms of additional capacity required and the flow and direction of crude and natural gas," said Al Monaco, who took over as company chief executive officer on Oct. 1. "Enbridge is right in the middle of that transformation."
The company has already discussed many of its projects, including the $2.4-billion replacement and expansion of much of its Line 6B, the pipe that ruptured and caused a costly spill in Michigan. But Stephen Wuori, Enbridge president of liquids pipelines, said the company is also pursuing a new pipeline from North Dakota to Superior, Wisc., that can carry oil from the Bakken play to market. He declined to give details, except to say it will be large, and called Sandpiper.
"If you look at the growth curve of the Bakken, there is no question that a conduit for more than 100,000 or 150,000 or 200,000 barrels per day is probably needed," he said.
Of the $30-billion in coming work, Enbridge has $18-billion secured with commercial contracts. The remaining $12-billion includes what it calls "highly probable" projects like a $1.5-billion expansion of its Mainline pipeline network and a $2.5-billion increase to pipe between Edmonton and Hardisty, two crucial Alberta oil nodes. In addition, Enbridge pointed to $5-billion in more speculative projects, which it believes it has a reasonable chance of securing.
As a point of comparison, the $30-billion figure "represents about 70 per cent of our current assets," Mr. Monaco said.
The new spending plans come as the company scrambles to shore up its defences against spills, after the Michigan accident that led a U.S. regulator to liken the Enbridge response to "Keystone Kops."
Enbridge put forward Art Meyer, its chief operating officer, to discuss the company's attempts to improve safety, including $150-million devoted to "retrofitting older pipelines with additional sensing devices and flow meters." It has begun sending acoustic tools through its pipelines that can help detect pinhole leaks with improved accuracy.
For example, in a pipeline pumping 20,000 barrels – or three-million litres – an hour, "these tools will pick up a release of six litres per hour," Mr. Meyer said.
The company is now midway through a broad inspection program that began last year. By the end of 2012, Mr. Meyer said, "we will have inspected over 16,000 kilometres of pipeline for corrosion, and nearly 12,000 kilometres for cracks. That means we will have inspected internally 75 per cent of our system with one of these technologies."
The company has also begun using a new control room, equipped with consoles that can be raised and lowered to accommodate workers who are either sitting or standing.
The safety upgrades come as the Michigan spill challenges the company's claims to industry-leading performance.
Although its frequency of spills, at 0.005 per billion barrel-miles, is a quarter the U.S. average, its volume spilled, at 10.5 barrels per billion barrel-miles, sits at almost exactly the wider U.S. industry tally.
"We take accountability for every incident, no excuses and no questions," Mr. Monaco said. "Instead, we need to focus our energy on getting better. The whole thrust of our focus on operations priority is to drive down our incident frequency."