Enbridge to Replace Mainline for $7B - Analyst Blog


Enbridge Energy Partners, L.P ( EEP ) and Enbridge Inc. ( ENB ) have received shipper support for a $7 billion investment in their Canadian and U.S. mainline system. The pipeline system runs from Edmonton, Alberta to Superior, Winconsin.

The Line 3 Replacement (L3R) Program will augment the existing Line 3 segment replacement program and include all remaining segments of Line 3 between Hardisty, Alberta and Superior.

The L3R Program is scheduled for completion by the second half of 2017. In order to offer a suitable return on the additional capital required, the mainline shippers have decided to bear surcharges on all barrels moving on the mainline. The L3R program will include replacement of all segments of the line between Hardisty and Superior with new pipes using the latest available high-strength steel and coating technology. These will considerably reduce the long-term integrity costs to maintain the line as well as enhance the reliability of service.

The ongoing initial development work will support the regulatory application that needs to be submitted in late 2014. Currently, the Canadian L3R Program, between Hardisty and Gretna, Manitoba, is projected to cost about $4.2 billion. This project will be carried out by Enbridge's wholly owned subsidiary, Enbridge Pipelines Inc.

The U.S. L3R Program, between Neche, North Dakota and Superior, estimated to cost about $2.6 billion, will be executed by Enbridge Energy Partners. The funding will jointly be provided by Enbridge and EEP at participation levels to be finalized and approved by the EEP Special Committee. The program will eliminate $1.1 billion of Line 3 integrity capital that would otherwise be required by 2017, as well as eliminate additional post-2017 integrity capital.

The capital costs on which the surcharges will be calculated will reveal detailed estimates to be decided in the first quarter of 2014. Shippers will have the alternative to cancel the L3R Program should the detailed cost estimate surpass the current preliminary estimate by more than 15%. In the event of such cancellation, all development costs incurred to that date would be recoverable from shippers.

A 1,031 mile (1,660 kilometers), 34-inch diameter pipeline - Line 3 - is one of the six crude oil pipelines that make up the Enbridge mainline system operating since 1968.

Enbridge Energy Partners holds a Zacks Rank #3 (Hold). Other stocks in the oil and gas sector such as Helmerich & Payne, Inc. ( HP ) and Patterson-UTI Energy Inc. ( PTEN ) with a Zacks Rank #1 (Strong Buy) are expected to outperform.

ENBRIDGE EGY PT (EEP): Free Stock Analysis Report

ENBRIDGE INC (ENB): Free Stock Analysis Report

HELMERICH&PAYNE (HP): Free Stock Analysis Report

PATTERSON-UTI (PTEN): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: EEP , ENB , HP , PTEN



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