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sean silcoff

British Columbia has dealt a blow to Enbridge Inc.'s controversial Northern Gateway pipeline by formally rejecting the proposed project, but is the decision much of a blow to the company's financial prospects?

Not really. The pipeline and gas distribution giant could walk away from Northern Gateway tomorrow and it would have no impact on its top or bottom line outlook.

Enbridge, a long-time stock market darling, is forecasting steady earnings-per-share growth of 10 per cent to 12 per cent per year from 2011 through 2016. (The company got off to a steady start with a 10.6 per cent increase last year.)

Much of that growth depends on the company executing on a massive backlog of some 37 capital projects totalling $28-billion in value. The list, which UBS analyst Chad Friess called "an embarrassment of opportunity" in a recent report, includes pipeline expansions, refurbishments, line reversals and facilities construction, all designed to expand Enbridge's capacity to move oil and gas from the Alberta oil sands and the Bakken region south of the border. These projects are all "commercially secured" – meaning a customer has been signed up in each case.

Notably absent from the backlog list: the $6.6-billion Northern Gateway project. The pipeline, which would connect the Alberta oil sands to the Pacific Coast, is part of a separate pile identified as "unsecured" projects, which totals $9-billion.

Enbridge has been highly successful in recent years in converting projects to "secured" status from unsecured. At the end of 2010, the company's backlog of secured projects under development totalled just $6-billion – or less than the value of the Northern Gateway project.

Now, there are so many projects in an advanced state – and only a handful, including the proposed reversal of a line between Sarnia and Montreal, which have met with any political resistance – that Northern Gateway barely merits a mention in bullish analyst reports on Enbridge. "We have never modelled in Northern Gateway into our valuation on future estimates," one analyst told ROB Insight.

There are risks to Enbridge's rosy outlook, of course. More oil spills, which have placed the pipeline industry under an unfavourable spotlight, could cloud long-term development plans. Rival pipeline company TransCanada Corp. could siphon away volumes with the planned conversion of its natural gas Mainline to crude. But Enbridge looks well positioned to meet such challenges.

Another risk is the debt that Enbridge will add to finance its development. But credit rating agency DBRS has given the company an A rating, noting the projects are expected to provide "relatively low-risk earnings and cash flow growth potential" over and above the company's "regulated, diversified and low-risk" operations. With $10.8-billion in available liquidity, Enbridge will not face a cash crunch any time soon.

Enbridge stock is trading well above its five-year average price-to-earnings multiple, suggesting the stock may be getting a bit ahead of itself. But the company's current stretch of good fortune has a few years left to run. For the time being, the debate over Northern Gateway should be little more than a sideshow for Enbridge investors.

Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights , and follow Sean on Twitter at @seansilcoff .


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