The Enbridge logo is shown at the company's annual meeting in Calgary on May 9, 2018.  THE CANADIAN PRESS/Jeff McIntosh

Enbridge anticipates cash flow bounty as Line 3 cost estimate jumps to $9.3 billion

CALGARY — Construction of the U.S. portion of its Line 3 oil pipeline will cost $1.1 billion more than expected due to regulatory and court delays in Minnesota but the CEO of owner Enbridge Inc. says the project is on track to start delivering “lots of free cash flow” by late this year.

“Despite this higher investment, our updated full-cycle return remains attractive and we’re seeing a stronger volume profile,” said Al Monaco on an earnings conference call on Friday.

“Once Line 3 is in service, it’s going to contribute a lot of free cash flow — and this year we anticipate it will be about $200 million in Q4 — with volumes and EBITDA ramping up in 2022.”

He said two recent court decisions in the U.S. that denied last-ditch opponent attempts to stop Line 3 make him confident the project will be completed by the fourth quarter and placed in service after about six years of regulatory review.

“The right-of-way is mostly cleared, station work is underway and trenching and welding started,” said Monaco.

Line 3’s total project cost is now expected to be $9.3 billion, up from $8.2 billion estimated in 2017.

It said about $400 million of the increase is due to having to build in the winter, $400 million from additional environmental measures, $200 million in extra financial and regulatory costs and about $100 million from measures to deal with the COVID-19 pandemic.

About $7 billion has been spent so far, including funds to complete the Canadian side of the pipeline which is already in service.

The Line 3 project is expected to add about 370,000 barrels per day of export capacity from Western Canada into the U.S.

If the Trans Mountain pipeline expansion is also completed as scheduled, the total export addition of nearly one million bpd is expected to account for Western Canada’s oil export needs at least through the first half of the decade, despite U.S. President Joe Biden’s recent cancellation of the Keystone XL pipeline.

“Even without Keystone XL, we believe that with Enbridge’s Line 3 due to come on in Q4/21 and the TMX pipeline to be done by the end of 2022, take-away capacity will not be an issue going forward,” said analysts with ATB Financial in a report on Friday.

The report said better prospects for pipeline capacity are already driving stronger prices for Canadian oil compared with benchmark U.S. crude.

Enbridge will continue to ignore an order from Michigan Gov. Gretchen Whitmer to shut down its Line 5 pipeline through the Great Lakes by May, Monaco said on the call.

He said the company believes it will succeed in a U.S. Federal Court challenge on jurisdictional and other grounds, noting the pipeline’s products are vital to the state as well as other nearby states and provinces.

Enbridge shares traded lower Friday on what analysts dubbed “mixed” fourth-quarter earnings despite its confirmation of a three per cent increase in the quarterly dividend to 83.5 cents per share.

Earnings attributable to shareholders came in at $1.78 billion, compared with profits of $746 million in the same period of 2019.

On an adjusted basis, fourth-quarter earnings were $1.13 billion, compared with adjusted earnings of $1.23 billion in the year-earlier period.

The company reported a recovery in volumes moved on its Mainline pipeline system, which accounts for the majority of Canada’s oil exports, but Monaco said the outlook for a return to typical demand for its services after last year’s pandemic-related hit is murky as vaccines roll out and new strains appear.

The Mainline’s volumes plunged to 2.44 million barrels per day in the second quarter of 2020 as refinery demand fell last spring, but recovered to 2.65 million bpd in the fourth quarter. That’s still short of the 2.84 million bpd moved in the first quarter of 2020.

Enbridge reported demand for Canadian heavy crude oil from the U.S. Gulf Coast refining hub is rising faster than demand for light oil.

The company reported installing its first solar power plant to supply a station on its Texas Eastern gas transmission pipeline and said two others are under construction.

The projects are part of its goal to cut its energy intensity by 35 per cent by 2030 and get to net-zero emissions by 2050.

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