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Enbridge Delivers Cheery Forecast, May Increase Gas Investments

Calgary-based Enbridge Inc. delivered some rare cheer to investors last week, trumpeting higher-than-expected earnings and a dividend boost for 2009, as well as the possibility that it may expand its North American "gas map."

Canada's second largest pipeline operator estimated its earnings next year will be between C$2.18 and C$2.32 per share, which is 20% higher than 2008 earnings guidance. Enbridge also plans to up its quarterly dividend by 12% in the coming year to C37 cents/share from C33 cents.

"This can be primarily attributed to strong earnings growth in our core business operations, which have been largely unaffected by the crisis in financial markets and the recent slump in energy prices," CEO Pat Daniel said during a conference call last Wednesday.

Enbridge has more than enough liquidity to work on projects it already has committed to through 2012, Daniel said. And that financial strength may allow the company to expand while others can't, he noted. Among other things, Canada's No. 1 crude oil shipper may turn its focus to more gas pipelines.

"There are some interesting opportunities out there," Daniel told analysts. "We've always said along the way that we would like to bolster our gas map."

Enbridge in November increased its ownership stake in Enbridge Energy Partners LP (EEP), which operates oil and gas pipelines in the Lower 48. Enbridge, which had owned 15% of the partnership, now owns 27% of EEP.

"There will be significant new gas infrastructure developments over the next five to 10 years in North America, and as we plan ahead we would like to strengthen our gas map, but it really will be dependent on the opportunities that are available to us...," Daniel told analysts. It's "hard to say at this point in time" where and what Enbridge may develop.

"I think as we look at it, we came into this financial crisis in a strong position relative to our peer group in North America, and every day our relative positioning gets better, as we hold well in the market and many of the peers have fallen off, so we think we're just in a very strong position to consider any and all opportunities. We definitely will keep things within our triangle of our investment proposition of safety, income, and growth," he said.

In its first "wave" of crude and gas pipe expansions through 2012, Enbridge has earmarked C$12 billion. That figure is not expected to change, said CFO Richard Bird. Last month Enbridge raised C$500 million in corporate debt to finance several growth projects set to be built through 2012.

Despite some delays in the joint venture Fort Hills oilsands project in Canada, Enbridge's forecasted earnings growth rate will be 10% or higher through 2012. Gas distribution and services earnings "should be up by a healthy amount," Bird said, which reflects stronger gas distribution earnings under incentive regulation and a stronger contribution from energy services businesses.

Over the coming five years Enbridge expects to spend C$12.5 billion, with around C$9.8 billion set aside for its liquids pipeline projects and C$2.7 billion for the gas business and other projects. However, the CFO said Enbridge also could fund opportunities in other ways.

"We continue to look at asset sales and asset monetizations and conventional common equity all as being alternatives available to us," Bird said during the conference call. "To the extent that we see an attractive opportunity on any of those fronts we would take advantage of it and potentially not just for the C$200 million, but potentially a bit more to allow for some of those potential investment opportunities..."

Daniel added, "One of the key things there is the flexibility that our current liquidity position gives us, to be able to time anything we want to do, whether it's to monetize an asset, to sell an asset, or to raise some common equity, we've got a lot of flexibility because of the liquidity position that we're in."

New power investments, however, are "not likely in a big way," Daniel said. "We've always indicated that if we had, for example, some gas-fired power opportunities in our franchise area in Ontario, where we already have infrastructure and gas management expertise, that we might consider them, but we're pretty comfortable with our model of crude oil pipelines, gas distribution and gas pipelines as being the key value drivers for us going forward."

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