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Vol. 9, No. 48 Week of November 28, 2004
Providing coverage of Alaska and northern Canada's oil and gas industry

Enbridge surfaces as U.S. Gulf deepwater giant

Canadian pipeline firm buys Shell’s GOM pipeline assets for $613M

Ray Tyson

Petroleum News Houston Correspondent

Canadian pipeline company Enbridge, with its pending US$613 million acquisition of Shell’s Gulf of Mexico natural gas transmission assets, would instantly become a major midstream player in the U.S. Gulf, particularly in the expanding deepwater frontier.

Enbridge, which already operates the world’s longest crude oil and liquids transportation system in Canada and the United States and is negotiating with the state of Alaska to build a gas pipeline from the North Slope, stands to gain substantial interests in 11 pipelines and gathering systems in five major transmission corridors offshore Texas and Louisiana. However, U.S. regulators must first approve the deal.

“Our vision has long been to be the leader in North American energy delivery, and this modest size acquisition advances us another step towards that end,” Pat Daniel, Enbridge’s chief executive officer, said in a Nov. 17 conference call explaining the Shell acquisition.

In North America, Enbridge already is “ideally” positioned in Western Canada for both oil and gas and maintains strong market positions in key U.S. Mid-continent regions, Daniel said.

“Now we’re adding a very strong market position in the offshore Gulf of Mexico as well, particularly in the deepwater Gulf, and that is important to us,” he said, adding that the U.S. Gulf was among several industry “hot spots” that had interested the company.

Lines near unexplored or undeveloped prospects

In fact, several of the Shell pipeline interests being acquired by Enbridge extend seaward as far or farther than any other natural gas pipeline in the U.S. Gulf. They also are situated near unexplored or undeveloped prospects — business that Enbridge said it hopes to capture in the future.

Shell Gas Transmission, to be renamed Enbridge Gulf System when the deal closes, transports about 3 billion cubic feet of gas per day, roughly 75 percent of which comes from deepwater fields. The system also delivers about half of all currently produced gas from the deepwater.

The systems included in the transaction have a combined daily capacity of 4.7 billion cubic feet and comprise about 1,482 miles of pipeline.

“It immediately gives us geographic reach and competitive strength in yet another growing North American gas supply region,” Daniel said.

He said Enbridge also likes the deal because the pipeline systems are fee-based and carry dedicated reserves and long-term contracts “with commercial terms which fit well with our low risk tolerance and business model at Enbridge.”

Sale part of ongoing Shell program

The sale, which represents the majority of Shell’s natural gas pipeline business in the U.S. Gulf, is part of Shell’s ongoing program to grow its upstream business and to focus on core downstream activities, Shell said.

However, Shell said its U.S. exploration and production unit would continue as a customer of Enbridge, retaining existing contracted long-term access to the pipelines. Shell and BP are currently the largest shippers on the Shell Gas Transmission pipeline systems.

Enbridge plans to hire members of the current Shell Gas Transmission management team and staff, the company said, adding that Enbridge would assume Shell Gas Transmission’s role as commercial manager and field operator for most the pipeline systems: Stingray, Triton, Garden Banks, Magnolia, Nautilus, Manta Ray, Cleopatra, Mississippi Canyon, Destin, Okeanos and Spirit. The Magnolia, Cleopatra and Okeanos systems have not been completed.

“The system is large and dominant in the region, which is attractive to us in terms of economies of scale,” Daniel said.

Enbridge expects deepwater Gulf of Mexico to yield more than 100 tcf

Enbridge expects the deepwater Gulf to yield ultimate recoverable natural gas reserves of more than 100 trillion cubic feet, with overall production peaking sometime between 2010 and 2020.

“We have a high level of confidence that the basin will develop further and will make additional connections, thanks to strong commodity prices, which is the big driver on development going forward,” Daniel said.

Steve Wuori, Enbridge’s chief financial officer, said the Shell acquisition would increase the company’s pipeline earnings by C$30 million to C$40 million in 2005, with earnings to increase “modestly” in 2006 and 2007, “as we complete the expansions and add contracted volumes on three of the five corridors.”

“We should be very competitive since our assets already are among the farthest out and well positioned,” he added.

Dan Tutcher, an Enbridge vice president, said the company also would be well positioned to transport potential volumes from LNG re-gasification facilities proposed in the U.S. Gulf.

“Overall, with their broad geographic footprint and proximity to recent discoveries and new exploratory plays, we anticipate these pipelines will continue to deliver solid performance and offer tremendous opportunities for organic growth,” he said.



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