In its bid to grow its pipeline network in the central UnitedStates and along the Gulf Coast, Enbridge Inc., Canada’s secondlargest pipeline operator, agreed to buy up-and-comer MidcoastEnergy Resources Inc. of Houston, which last year more than doubledits revenue and saw profits soar 51%. Enbridge owns 21.4% of the $3billion Alliance pipeline, which delivers gas from Alberta to theMidwest.

Calgary-based Enbridge agreed to pay Midcoast US$27 a share, orabout US$350 million, and assume about US$250 million in debt. Theprice is a 7.1% premium to Midcoast’s stock price on Thursday ofUS$25.20. Enbridge estimates the purchase will add C$30 million(US$19.2 million), or C$.05 a share to its earnings in 2002. Theyexpect to complete the transaction in the second quarter.

When the acquisition is completed, Enbridge said it mighttransfer all or part of Midcoast’s assets to Lakehead Pipe Line Co.Lakehead Pipe Line Partners LP operates the U.S. portion ofEnbridge’s petroleum pipeline, and Enbridge said Lakehead likelywould be the vehicle chosen for the company’s U.S. growth.

Lakehead and Enbridge had already announced that they would usetheir partnership as a vehicle for growth through the acquisitionof mature energy transportation assets, including purchasing assetsfrom other Enbridge affiliates.

Enbridge CEO Patrick D. Daniel said that the acquisition wouldenhance his company’s “strong growth profile,” and said the deal”represents a significant step in increasing our North Americanfootprint. It furthers several strategic objectives, includingobtaining a significant presence in the U.S. Gulf Coast andmid-continent regions, increasing our exposure to natural gasassets and adding to the scale of our U.S. operations.” He saidMidcoast’s risk profile was similar to Enbridge, “with limitedexposure to natural gas or natural gas liquids commodity prices.”

Daniel said Enbridge planned to keep Midcoast’s employees,including its executive staff, noting that Midcoast CEO Dan Tutcherand his team had been “very effective” in developing the company.”Going forward, this team will play a key role in our U.S.development and growth strategy.”

Midcoast, with offices in Texas, Alabama, Kansas, Louisiana,Mississippi and Alberta, transports, gathers, processes and marketsnatural gas and other petroleum products through more than 80company-owned pipelines. Its pipelines cover almost 4,100 miles in10 states, Canada and the Gulf Coast.

“The union of Midcoast with Enbridge represents the culminationof our efforts over the past year to position ourselves in the mostfavorable manner to continue the dramatic growth we have achievedsince our initial public offering in 1996,” said Tutcher. “Thistransaction provides a foundation of assets, personnel andfinancial strength to further accelerate this growth.” The MidcoastCEO said that the board had unanimously approved the deal and wouldvote in favor of the merger in the second quarter.

Enbridge, which saw its profits rise 10% in 2000, despite afourth quarter loss related to the startup of Alliance, operatesone of the longest crude oil and liquids pipeline systems in Canadaand the United States. Along with its involvement in liquidsmarketing and international energy projects, it has a growinginvolvement in natural gas transmission and midstream businesses.Alliance, its largest asset, was running at nearly full capacity inFebruary, carrying about 1.3 Bcf/d. Enbridge also provides naturalgas service to 1.5 million customers in Ontario, Quebec and upstateNew York.

Carolyn Davis, Houston

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