Enbridge Inc. (ENB) announced its plans to invest up to $200 million to build a 31-mile long pipeline with 16-inch diameter, stretching from the Hangingstone Oil Sands Project to the company’s Cheecham Terminal. The pipeline would be the ninth oil sand project connected to Enbridge's regional network.
In addition, the company will complete required operational alterations at its Cheecham terminal to manage the added yield. This pipeline set up is subject to the Energy Resources Conservation Board and other regulatory approvals. Enbridge is expected to start its pipeline development activities from the winter of 2014/2015.
Enbridge had already signed an agreement to provide pipeline and terminaling services to Athabasca Oil Corporation for the proposed Hangingstone Oil Sands Project by the latter. The initial term of this contract will be 25 years and Athabasca Oil will enjoy the right to extend the agreement in successive five-year terms for a total contract life of 45 years.
Per the agreement, Enbridge will offer pipeline transportation services to its Regional Oil Sands System, Edmonton, Alberta for bitumen produced from the Hangingstone Project.
This pipeline set up has two phases. The pipeline will enable to transport 16,000 barrels per day (bpd) of diluted bitumen in Phase 1 and subsequently scale up the supply level to a further 60,000 bpd from Phase 2, which will be assigned to the Enbridge regional operations, if authorized. The Phase I facilities are expected to be online in the second half of 2015. It is evident from Enbridge’s latest investments that it is expanding its coverage in Edmonton.
Earlier, in Jan 2013, the company planned to invest up to $400 million to expand its Canadian mainline system between Hardisty, Alberta, and the U.S. border. The pipeline is an extension of Enbridge’s pipeline construction plan at Edmonton and Hardisty, announced in Nov 2012. The expansion will augment the capacity by 230,000 bpd and involves increased pumping horsepower.
As of Dec 31, 2012, Enbridge had a cash balance of $1.8 billion and cash provided by operating activities were $503.6 million. The company’s strong financial position enables it to continue with various organic projects.
However, we remain apprehensive about the company’s midstream natural gas business, which is sensitive to changes in natural gas supply-demand fundamentals and commodity cycles associated with gas processing margins.
Enbridge Inc. currently has a Zacks Rank #4 (Sell). Other stocks from the industry that are presently performing well include SemGroup Corporation (SEMG) with Zacks Rank #1 (Strong Buy), and EQT Midstream Partners LP (EQM) and Oiltanking Partners L.P. (OILT) with Zacks Rank #2 (Buy).
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