Enbridge Inc. is shedding its Canadian natural gas gathering and processing business in a $4.31-billion sale to Brookfield Infrastructure Partners LP (BIP) and other investors as the pipeline giant seeks to cut debt and fund growth.
Enbridge said on Wednesday that the assets include 3,550 kilometres of pipelines and 19 processing plants located in the Montney, Peace River Arch, Horn River and Liard basin exploration regions of Alberta and British Columbia.
It’s the latest in a string of deals by Enbridge as chief executive Al Monaco seeks to tamp concerns over high debt and allay questions about the company’s ability to fund growing dividend payments and $22-billion in pipeline expansions.
Enbridge received a long-awaited approval in Minnesota last week for its massive Line 3 oil pipeline, removing the final regulatory hurdle for the $9-billion Alberta-to-Wisconsin expansion.
However, there were big concerns the company would need to tap markets to fund development of the line and other projects, said Laura Lau, portfolio manager at Brompton Funds in Toronto. That seems less likely now, she said.
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“Really the big question is, how are you going to fund everything?” she said by phone on Wednesday. “It’s a sigh of relief that there’s probably not going to be an equity issue, or less equity, going forth.”
Anxiety over Enbridge’s balance sheet as well as its tangled corporate structure was amplified following the company’s $37-billion takeover of Spectra Energy in 2017.
The company has now sold $7.5-billion worth of assets, more than double a target of $3-billion for this year. In May, the company sold a 49-per-cent stake in renewable energy assets to Canada Pension Plan Investment Board for $1.75-billion. It also raised $1.44-billion in the sale of its Midcoast Operating LP unit.
Enbridge is also advancing an $11.4-billion restructuring to buy out four of its publicly listed subsidiaries in a bid to remove complexity that analysts and investors had blamed for weighing down the shares.
The company’s stock price edged up slightly in Wednesday’s session on the Toronto Stock Exchange and has climbed roughly 25 per cent since April.
Mr. Monaco said in a statement that the latest deal gives the company added flexibility and fits with its strategy of favouring projects and assets underpinned by long-term contracts and regulated returns.
The company will retain ownership of its Westcoast natural gas system in British Columbia, as well as its 50-per-cent stake in the Alliance pipeline, which transports natural gas from the province to the Chicago market. Enbridge also said its cash-flow guidance through 2020 and its year-end leverage target remain unchanged.
Brookfield Infrastructure CEO Sam Pollock declined to comment on the deal on Wednesday. However, he has previously expressed interest in making more acquisitions in the company’s Canadian home market.
Under the deal, BIP will take a 30-per-cent interest in Enbridge’s Western Canadian natural gas business by making an equity investment of about $500-million, bringing the total equity value of the deal to about $1.8-billion. The transaction will be made through BIP’s flagship global fund, giving it control of the asset even as other institutional investors such as pension funds, sovereign wealth funds and high-net-worth investors become significant owners.
Mr. Pollock took note of North American energy infrastructure companies’ recent stock market sell-offs and negative investor sentiment in a letter to unitholders after the company’s first quarter.
This environment was reshaping the competitive landscape that had been unattractive to BIP for years as a result of a glut of interested buyers and hefty debt loads.
But that outlook has changed.
“As the U.S. transitions to become a net exporter of energy, there is also a significant need for capital to invest in infrastructure to extract, transport and process energy resources,” Mr. Pollock wrote.
“Therefore, our opportunity set includes potential asset carve-outs, take-privates and partnership arrangements with owners of energy infrastructure assets.”
Enbridge has now sold $7.5-billion worth of assets this year, more than double a target of $3-billion. In May, the company sold a 49-per-cent stake in renewable-energy assets to Canada Pension Plan Investment Board for $1.75-billion. It also raised $1.44-billion in the sale of its Midcoast Operating LP unit.
Enbridge’s Toronto-listed shares edged up about 1.5 per cent in midmorning trading Wednesday.
The latest deal “advances our strategic priority of moving to a pure play regulated pipeline and utility business model,” Mr. Monaco said in a statement. “It also demonstrates our focus on prudent capital allocation and ensuring the continued strength of our balance sheet and funding flexibility,” he said.
The company said the sale of its provincially regulated assets would close this year, while the sale of federally regulated facilities is anticipated in mid-2019. It also said it would retain ownership of its Westcoast natural-gas system in British Columbia and its Alliance pipeline, which transports natural gas to Chicago.
The transactions follow approval last week of Enbridge’s massive Line 3 oil pipeline expansion from Alberta to Wisconsin, the biggest project in the company’s history and the largest wedge of the company’s growth backlog.
Enbridge is also moving ahead with an $11.4-billion restructuring to buy out four of its publicly listed subsidiaries after investors knocked the company’s complex corporate structure.
Brookfield Infrastructure CEO Sam Pollock said in a statement the deal allows the firm to invest at scale in the continued development of B.C.’s Montney exploration region.
“This investment represents an exciting opportunity to invest in scale in one of North America’s leading gas gathering and processing businesses based in Western Canada,” he said.