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Enbridge takes trust route Moves C$850 million of assets into income fund, including stake in Alliance pipeline Gary Park Petroleum News Calgary Correspondent
Enbridge is creating an C$850 million income trust, topped by its 50 percent stake in the Alliance pipeline which is seen as a pivotal player in moving northern natural gas to the U.S. Midwest.
Canada’s second largest energy pipeline company said May 26 that the Alliance holding plus its 100 percent interest in a 160,000-barrel-per-day Saskatchewan oil and liquids pipeline will be the initial asset base for the fund.
Enbridge expects to log a pre-tax gain on the transfer of assets and receive cash proceeds of up to C$350 million.
The Calgary-based company plans to hold an initial 35 percent to 45 percent in the fund, declining to around 15 percent to 20 percent as more units are sold.
Other Canadian pipeline assets with stable cash flow and limited capital needs will be directed into the fund as the assets mature and the fund is able to pay for acquisitions, Enbridge said.
The initial public offering is likely to be launched in late June or early July. Looking to buy, expand Along with reducing debt, Enbridge Chief Executive Officer Pat Daniel told a late May conference call with analysts that the proceeds will give Enbridge the “dry powder” to make an acquisition, although it has nothing in its sights at the moment.
“There are a lot of opportunities out there and we’ve looked at many of them,” Daniel said.
He forecast “continuing, significant acquisition opportunities during 2003 and 2004 given ongoing industry divestitures and balance sheet reparations” especially in the United States.
From its base as operator of the world’s longest crude oil and liquids pipeline system, Enbridge has grown over the years into a diversified energy transportation and distributing company in North America and internationally.
Over the past two years, Daniel has served notice that Enbridge is ready to expand, especially in the United States, where investors have pressured pipeline companies to unload assets and shore up their assets.
Enbridge’s major moves have occurred since last fall, with El Paso, Duke Energy and Williams Companies quitting the Alliance consortium, boosting Enbridge’s ownership to 50 percent from its 21.4 percent when the pipeline came on stream in late 2000. Likely to play major role in northern gas With capacity of 1.325 billion cubic feet per day from northeastern British Columbia to the major U.S. market in Chicago, the 1,800-mile Alliance line has been identified by Daniel as likely to “play a significant role” in the movement of northern gas.
He said in early May that Alliance -- which currently operates at close to full capacity with 13 years remaining on shipper contracts -- can benefit from northern shipments, even if Enbridge misses out on a stake in the proposed Mackenzie Valley gas pipeline.
Daniel said Enbridge is now more likely to be involved in moving natural gas liquids from the Delta to its existing crude pipeline from Norman Wells, in the central Mackenzie Valley, to northern Alberta.
He estimated a liquids line could be built from the Delta to Norman Wells at a cost of C$150 million. Committed to Aux Sable The Delta liquids plus liquids-rich North Slope gas would be a good fit with Alliance, which could be cost-effectively expanded, Daniel said.
Enbridge also holds 43 percent of the Aux Sable liquids extraction plant at the end of the Alliance pipeline.
Daniel is committed to achieving a better performance from the money-losing Aux Sable, which he hold the company’s annual meeting in May is a “necessary evil” to reduce the heat content of liquids-rich gas to meet the standards of local distribution companies.
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