Calgary pipeline operator Enbridge Inc. posted impressive quarterly results, but it said that to finance some of the massive pipe projects planned over the coming four years, it may sell some of its assets, in whole or in part, rather than issue common shares.
The company posted a 45% increase to net profit in the final three months of 2007 to C$248.6 million, compared with C$171.1 million in 4Q2006. Cash flow in the quarter jumped to C$276.9 million from C$145.4 million, and revenues rose to C$3.2 billion from C$2.8 billion. Annual earnings rose 14% to C$700.2 million, compared with C$612.4 million in 2006.
Enbridge has committed to a slew of projects between now and 2012, and it plans to increase capital spending by 61% this year to C$3.7 billion. The spending increase is predicted to boost annual per-share profit by an average 10% through 2012. Included on the project list is the Texas Access Project, a joint venture with ExxonMobil Corp., that would carry oilsands crude to Gulf Coast markets by 2011.
CEO Patrick Daniel, who led a conference call with energy analysts and investors Wednesday, said Enbridge's expansion projects "will enhance our position as an essential link between the oilsands resource in Canada and crude oil demand in the United States."
To finance everything on the to-do list, which will total around C$12 billion, Enbridge will need money -- and the company is not averse to selling whole assets or stakes in some of them. Daniel did not elaborate on what assets could be sold or how much money they may bring. Enbridge, he said, won't need to raise any equity "until the third or fourth quarter of this year...Time is definitely in our favor, and that puts us in the very good position of being able to time the market to ensure that we maximize on pricing."
CFO Richard Bird told analysts that Enbridge's financing plans for all of its projects is "very manageable," but he added that "at present we view our common shares to be undervalued and therefore, not a preferred source of equity funding."
At midday Friday on the New York Stock Exchange Enbridge was trading at US$39.56/share. In the past year the stock has traded for as high as $44.29 and as low as $30.93.
The CFO estimated that the net amount to be funded over the next four years is C$1.5 billion. "This can be met with asset sales, asset monetizations, hybrid securities and common equity," he said. "Part of Enbridge's value proposition has always been to source capital at the lowest possible cost. That's why Enbridge Energy Partners was initially created likewise [why] Enbridge income fund was initially created."
Enbridge has "a range of other alternative sources through which we expect to be able to attract capital on more attractive terms," said Bird. "This may include outright sale of selected assets, or in some cases a monetization structure in which we introduce direct infrastructure investors in the selected assets withdrawing a portion of our capital but maintaining operating and strategic control."
Daniel noted that last year Enbridge "completed a number of smaller projects, and we made excellent progress in construction and commercial activities and several other larger projects that we have under way."
The Vector pipeline expansion, which has increased capacity by 200 MMcf/d, was placed into service in 4Q2007. And Canada's National Energy Board has concluded hearings on Enbridge's application to construct the Alberta Clipper Pipeline. Daniel said the company expects a final decision on the project by the end of March.
"We have also made significant progress on a number of projects in the gas division of the company," said the CEO. "Enbridge Energy Partners expects the third stage of the C$635 million project Clarity to be completed in February. When complete, Clarity will have a capacity of 700 MMcf/d "to move growing gas production from East Texas to major pipeline interconnects and the markets in the Beaumont, TX, area. Current throughput is approximately 240 MMcf/d and is expected to climb [to] around 600 MMcf/d by the end of 2008."
In the Gulf of Mexico, Enbridge's offshore construction of the Neptune oil and natural gas pipelines was completed in late 2007, "and we began now to earn standby fees on the pipelines," he said. "The project is awaiting completion of the final subsea connections prior to start-up, which is expected here early in 2008..."
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