Enbridge Inc. is poised to blow past its target for asset sales this year, easing pressure on chief executive officer Al Monaco as he seeks to chop debt and simplify the company’s complex operations.
The Calgary-based energy company on Wednesday announced a pair of deals that generated combined proceeds of roughly $3.2-billion. That’s above its target of $3-billion for the year and before counting Canadian infrastructure assets it has on the block.
“If that comes to fruition, there is material upside to the $3-billion asset sale target,” Royal Bank of Canada analyst Robert Kwan said in research note.
Enbridge said it is selling a 49-per-cent stake in wind and solar energy assets in North America and Germany for $1.75-billion to the Canada Pension Plan Investment Board (CPPIB).
Separately, the company said an affiliate of Boston-based private equity firm ArcLight Capital Partners LLC would buy its Midcoast Operating LP unit and related subsidiaries for about $1.44-billion. The sale includes natural-gas gathering and processing assets in Texas, Oklahoma and Louisiana.
Calgary-based Enbridge is selling assets to fund growth and address concerns about its long-term debt, which swelled to roughly US$61-billion following its acquisition of U.S. rival Spectra Energy Corp. in 2016.
Enbridge shares have slid about 18 per cent this year, reflecting anxiety over the company’s ability to fund dividend payments and $22-billion in expansions, including its contentious Line 3 oil pipeline replacement from Alberta to Wisconsin. The shares traded up more than 2 per cent on the Toronto Stock Exchange in Wednesday midafternoon trading.
CPPIB is picking up interests in Enbridge’s Canadian renewable power assets, plus a wind farm in Colorado and a solar project in Nevada. It also gets a stake in Enbridge’s 497-megawatt Hohe See offshore wind farm and a related expansion in Germany. CPPIB has also agreed to spend an additional $500-million to finish construction of the offshore project, which is expected to start up in 2020 and generate power under long-term contracts.
It adds to a string of wind and solar investments by the pension fund since December, 2017, including in Brazil, India and Canada. Under the deal, CPPIB and Enbridge will team up in a new joint venture to invest in future opportunities in an expanding European market.
“Just in terms of the growth of the market and the capital scale of the market -- we thought that was actually a very good fit for us to move forward to together on it,” said Bruce Hogg, managing director and head of power and renewables at CPPIB.
For Enbridge, the valuation for renewable assets in line with recent deals by the pension fund, although its Midcoast gas assets garnered proceeds at the lower end of what was expected, said Manash Goswami, portfolio manager at First Asset Management in Toronto.
The Midcoast assets include about 18,000 kilometres of natural-gas gathering and transportation pipelines and 2,075 million cubic feet per day of processing capacity plus 1,330 million cf/d of treating capacity.
Despite the deals, Mr. Goswami said uncertainty over the fate of its Line 3 pipeline is likely to keep pressure on Enbridge’s shares.
Enbridge aims to restore capacity on the 1960s-era Line 3 pipeline to 760,000 barrels a day, from a little more than half that level today. But the $9-billion project - the biggest in the company’s history - is opposed by environmentalists and some Indigenous tribes and still requires final clearances from state regulators in Minnesota.
Last month, an administrative judge said Enbridge should replace the aging pipeline along its existing path, an option the company insists is impractical. A final decision from the state’s Public Utilities Commission is expected in June.
“We’re hopeful,” First Asset’s Mr. Goswami said. “The route that Enbridge has asked for is not, in our minds, a brand new route.”
With files from reporter Jacqueline Nelson in Toronto.