Copyright of the Daily Oil Bulletin 2018
Enbridge CEO Explains Rationale For Non-Core Asset Sales
Midstream assets deemed non-core by Enbridge Inc. and which will be monetized over time would be more valuable in the hands of a focused midstream G&P player or a financial investor, says the company’s chief executive.
“These assets are positioned very well for the price recovery—we are starting to see some of that—they are located in some very good areas and we have very capable operating teams,” Al Monaco, president and CEO, told an Enbridge investor day this morning. “Although there is very good upside in those assets, they don’t hit the middle of our fairway.”
The midstream business which generated about $600 million in EBITDA this year is comprised of unregulated Canadian and U.S. midstream assets along with a 50 per cent interest in standalone DCP Midstream, the largest producer of natural gas liquids and the largest natural gas processor in the U.S. While the assets have strong growth fundamentals, they also carry volume and price risk exposure.
Enbridge also plans to deemphasize its North American onshore renewable power business although it plans to retain its European offshore wind projects, most of which are still in the development stages. The renewables business will generate about $350 million in EBITDA this year.
“I think it’s fair to say we have been successful at building a pretty good renewables business from scratch and very good internal skills for those assets,” said Monaco. “The business fundamentals for this business are very strong and the commercial underpinning hits the middle of the fairway pretty well.”
The assets, he said, have PPAs (power purchase agreements) with strong counter-parties and are geographically-diversified which is important in the renewables business. However, Enbridge plans to deemphasize onshore renewables and monetize at least half the assets which “are very highly valued in the market today,” he said.
“This is a case of redeploying capital at good value to other priorities.”
Enbridge’s offshore wind assets are in a slightly different situation, according to Monaco. “They are very well positioned, we have a very large opportunity set in front of us and on that one we are still pretty much in the development phase.”
The company plans to continue to execute its offshore capital program and develop opportunities that provide longer-term upside beyond 2020.
Following its acquisition of Spectra Energy earlier this year, Enbridge conducted a strategic review in which it identified $10 billion in non-core assets. The plan is to monetize or sell a portion of those businesses with a minimum of $3 billion in 2018 as it transitions to a pure play regulated pipeline utility model. “We were almost there but certainly we are going to be 100 per cent there going forward,” said Monaco.
With the Spectra acquisition, Enbridge has transformed the company into a global scale leading infrastructure company, he said.
Capital will be directed to the core businesses of liquids pipelines and terminals, its newly acquired natural gas transmission and storage and two natural gas utilities in Ontario which will become one next year which will have more organic growth in the years to come, analysts were told.
“Our assets are very well positioned to serve key supply basins and consuming markets,” said Monaco.
Today the company is balanced between oil and natural gas transportation, similar to its position about 20 years ago before the rapid growth in oil transportation growth. “We are very big believers in natural gas which was a key thought behind the Spectra deal.”
Enbridge also has a strategic advantage with rights of ways and strong relationships, he suggested. “We have got long life assets that frankly aren’t going to go anywhere and are indispensable to the North American economy.”