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Enbridge CEO counsels patience as western oil glut ‘screams’ for solutions

The Canadian Press

CALGARY — Enbridge Inc. is looking at options to help clear a glut of oil in Western Canada — including reversing a condensate import pipeline — but CEO Al Monaco counselled patience recently as all solutions will take time to put in place.

The pipeline company reported adjusted earnings of $933 million in the third quarter, up from $632 million a year ago, in part because of increased crude volumes and revenue on its Mainline system out of Western Canada.

“From what we see from our vantage point, storage levels are at a record high and while rail is providing some relief, it’s not enough to bring in the very wide discount (prices),” said Monaco on a conference call to discuss results. “All of that means our Mainline is running very full these days for both heavies and lights. It’s not news that these price dislocations…scream for new infrastructure and that’s what we’re focused on.”

Several producers have announced they will reduce production in view of heavy oil spot price discounts that have ballooned to as much as US$52 per barrel compared with U.S. benchmark prices. Light oil discounts have also hit multi-year highs.

Enbridge expects to obtain final permits in Minnesota in time to begin construction in the first quarter on its $9-billion Line 3 replacement export pipeline, which would allow it to be in service in the fourth quarter of 2019.

The project is to add over 370,000 barrels per day of export capacity but that won’t be enough to match demand based on the Western Canadian supply growth outlook, Monaco said.

He said Enbridge is looking at adding another 200,000 bpd of capacity by using drag reducing agents in its pipeline and redirecting some downstream injections to open up long-haul capacity for Western Canada, along with low-cost pipeline and pumping station upgrades that could add another 125,000 barrels a day of capacity by the early 2020s.

The company has also recently ramped up its evaluation of converting its Southern Lights condensate import pipeline into a crude oil export pipeline with capacity of about 150,000 bpd.

The line, which imports light oil used to dilute oilsands bitumen, began operations in 2010 after an Enbridge crude pipeline was reversed and over 1,000 kilometres of new pipeline built in the U.S. Enbridge reported a net loss of $90 million in the three months ended Sept. 30 as it was hit by a number of one-time charges.

The pipeline and utility company says the loss amounted to five cents per share for the quarter compared with a profit of $765 million or 47 cents per share a year ago.

The loss for the most recent quarter included a non-cash charge of nearly $1.02 billion after taxes.

Enbridge says the improvement in adjusted earnings was driven by strong operating results across its business, new projects coming into service, benefits from its Spectra Energy acquisition and more favourable foreign exchange hedge rates.

Mainline shipments came to 2.58 million barrels per day, up from 2.49 million bpd in the year-earlier period, resulting in adjusted earnings of $537 million compared with $348 million.

The company announced it will suspend its dividend reinvestment and share purchase plan as of Dec. 1 because of its progress on its funding and asset sales plan.

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