October 2016, Vol. 243, No. 10


Enbridge-Spectra Mega-Deal Points to Further Midstream Diversity

Oil-intensive Enbridge’s acquisition of natural gas pipeline-focused Spectra Energy emphasized a growing trend among midstream companies to diversify while creating North America’s largest infrastructure company in the process.

The $28 billion deal, announced Sept. 6 and expected to close in the first quarter of 2017, will leave Enbridge shareholders owning about 57% of the combined company and Spectra shareholders claiming about 43%.

“This is a lot less risky than holding [stock from] either Spectra or Enbridge individually,” Bill Yardley, president of U.S. transmission and storage at Spectra, told Houston Business Journal. “There is an incredible visibility to growth and contracts already signed.”

Among Spectra-owned natural gas pipelines are the 1,100-mile Algonquin connecting Texas to New England, the BC running through British Columbia, the Big Sandy in eastern Tennessee, the Dawn-to-Parkway in southwestern Ontario, the Maritimes & Northeast from Goldboro, Nova Scotia to Dracut, MA, and the Gulfstream from Mississippi and Alabama – underwater across the Gulf of Mexico – to Florida.

Enbridge is the largest shipper of crude oil in Canada at about 2.2 MMbpd, and its pipeline system in Canada and the United States is the longest in the world. Among its assets are the 5,022-mile Lakehead System from Neche, ND to Chicago, with an extension into Buffalo, NY; the 683-mile North Dakota System from Plentywood, MT to Clearbrook, MN; and the 433-mile Mid-Continent System for Cushing, OK to Wood River, IL.

When the deal closes, the resulting company – with an enterprise value of $127 billion – will be called Enbridge Inc. and retain its current headquarters in Calgary, Canada.

“Over the last two years, we’ve been focused on identifying opportunities that would extend and diversify our asset base and sources of growth beyond 2019,” said Al Monaco, Enbridge president and CEO, who will continue in that capacity.

Spectra President and CEO Greg Ebel will serve as non-executive chairman of the Board of Directors, which is expected to have 13 directors, consisting of eight members designated by Enbridge, including Monaco, and five members designated by Spectra Energy, including Ebel.

Yardley will become president of gas transmission and midstream for Enbridge, a business unit that will be based in Houston. Spectra is a Houston-based company. Edmonton, Alberta will remain the business unit center for liquids pipelines, with gas distribution continuing to be based in Ontario.

“Frankly, if one commodity is favored over the other, we can shift our capital and resources to compete harder,” Yardley told HBJ. “… This transaction makes us stronger, and the other guy can get stronger, too. We have to do what we can to compete.”

Less than two weeks prior to its acquisition, Spectra said it would go forward with the $3 billion Access Northeast natural gas pipeline project even though its two energy partners pulled out of the deal in Massachusetts following a damaging court ruling.

Both Eversource Energy and National Grid cited the decision by the Supreme Judicial Court in Massachusetts to prohibit ratepayers from financing private pipeline projects as cause for abandoning the project. Spectra said the decision by the two companies only involved Massachusetts and that the partners will still seek approvals in New Hampshire, Connecticut and Rhode Island.

The merging of Spectra and Enbridge comes on the heels of another midstream blockbuster deal – TransCanada’s $13 billion acquisition of Columbia Pipelines in a deal that closed July 1. Another proposed deal that eventually fell through was Energy Transfer Partner’s attempted takeover of Williams.

Consolidation is a growing trend in the industry in the wake of lower oil and natural gas prices that have reduced shipment demands. Another reason to buy rather than build assets has been the frequent difficulty projects face from regulatory constraints, local opposition and outside protesters.

“The environmentalists are out there, they’re powerful, and they’re trying to stop the gas pipelines,” Jay Hatfield, CEO of the hedge fund Infrastructure Capital Management told Bloomberg. “If you own one, that makes it that much more valuable.”


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