Enbridge Inc., which has experienced two high-profile disruptions on its Texas Eastern Transmission (Tetco) system this year, including last week’s deadly explosion in Kentucky, said it expects higher “integrity expenditures” for its gas transmission business to continue through the end of the year.
The Calgary-based midstreamer disclosed in its 2Q2019 results that the financial performance of its Gas Transmission and Midstream segment took a hit from the higher integrity costs. The segment’s earnings for the quarter were C$941 million, down from C$1.014 billion a year ago.
CFO Colin Gruending said during a conference call with investors and analysts Friday that Enbridge is “working through a comprehensive integrity program, and we expect this to result in higher integrity expense through the course of 2019.”
The company “started seeing the impact of higher than guided integrity expense” in the Gas Transmission and Midstream segment during the second quarter, “and we expect this to ramp up throughout the remainder of the year as we execute the integrity program.”
The estimated “drag” from this program is around C$100 million for the back half of 2019, or around C$0.05 cents/share, management said.
Asked if Enbridge would see continued higher levels of integrity management spending in 2020 and further out, CEO Al Monaco said, “It’s probably in the same order of magnitude as we have this year, maybe a touch higher, but that’s our view at this point.”
Last week, an explosion on Tetco’s system just south of Danville, KY, rocked the natural gas futures market as it forced the pipeline to cut north-to-south flows through the area to zero. As analytics firm Genscape Inc. observed, the incident was similar to an explosion in southeast Ohio in January that impacted the same three lines.
Enbridge’s Westcoast Energy pipeline also suffered an explosion this past October near Prince George, British Columbia.
In the aftermath of last week’s Kentucky blast, “our hearts go out to the family and the community,” Monaco said at the start of Friday’s call. “Our first concern, of course, is for those impacted, so we’ve mobilized resources to assist and support them.”
Enbridge is “working with the federal agencies to investigate what happened and how the learnings can improve our approach and that of the industry in the future.”
Meanwhile, through its existing infrastructure the company is positioning itself to take advantage of opportunities created by liquefied natural gas (LNG) export growth along the Gulf Coast.
Enbridge said it recently secured the rights to serve supply to Venture Global’s Plaquemines LNG project in Louisiana through a reversal and expansion of a Tetco lateral. Plans for the project are still conditional on Venture moving forward with a final investment decision on the Plaquemines terminal.
“What we’ve been able to do here is demonstrated, and there are likely to be more opportunities to follow on the gas side,” Monaco said of Enbridge’s strategy in the Gulf Coast. “We are just so well positioned there in terms of our existing infrastructure that in some ways we become the natural go to for bringing a supply to these LNG plants, what we call the next wave of LNG projects, that are hopefully going to be sanctioned here by the LNG developers.”
Also during the second quarter, Enbridge brought the $0.2 billion Texas Eastern Stratton Ridge mainline expansion into service, a project management sees further advancing the company’s strategy around LNG exports out of the Gulf.
On the liquids side, the $0.7 billion Gray Oak pipeline remains on target for completion in 2019, and management expects to ramp up volumes on the line during 1Q2020 to serve “the pressing need for incremental crude export capacity” out of the Permian Basin.
The Liquids Pipelines segment saw earnings of C$1.992 billion in the second quarter, versus C$1.322 billion in the year-ago quarter.
Earnings for the Gas Distribution segment totaled C$390 million in the quarter, up from C$370 million a year ago.
Enbridge reported distributable cash flow of C$2.31 billion for the second quarter, compared with C$1.858 billion in the year-ago period.
Second quarter earnings attributable to common shareholders totaled C$1.736 billion (C86 cents/share), versus C$1.071 billion (C63 cents) in the year-ago quarter.
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