11/09/2011 07:52 EST | Updated 01/09/2012 05:12 EST

Enbridge Inc. profit drops to $4 million in Q3 on adjusting asset values

CALGARY - Enbridge Inc. could pick up business if the Keystone XL crude pipeline isn't built, but a decision to reject the Alberta-to-Texas line would set a bad precedent, chief executive Pat Daniel said Wednesday.

Calgary-based Enbridge (TSX:ENB) operates a vast network of pipes that feed Canadian crude into the United States and has a variety of expansion projects in the hopper.

Its chief competitor, TransCanada Corp. (TSX:TRP), wants to build the Keystone XL crude pipeline connecting Alberta's oilsands and some domestic crude sources to Gulf Coast refineries. But the proposal has run into stiff opposition from environmentalists who say the line would increase U.S. reliance on "dirty" Alberta oil and pollute drinking water sources along its proposed route.

The prospects of Keystone XL moving forward are uncertain, with it looking increasingly likely an Obama administration decision on the proposed $7-billion line will be delayed amid the controversy.

That has potential customers eyeing alternatives to get their crude to market.

One Enbridge proposal, called Wrangler, would trace much of the same ground as Keystone XL, shipping crude from Cushing, Okla., to refineries on the Texas coast. Enbridge is looking at a separate pipeline from the Chicago area to Cushing, a huge oil storage hub brimming with excess crude.

Its hard to pin down exactly how much more oil Enbridge can pump south of the border should TransCanada Corp.'s Keystone XL proposal not go ahead, Daniel told a conference call with analysts Wednesday.

"Suffice it to say that we do have sufficient capacity available, and/or relatively low-cost expansions to be able to accommodate most of, at least the early volumes, of what would have moved on Keystone XL," he said.

It's possible for three separate Cushing-to-Gulf proposals — part of Keystone XL, Wrangler and a possible reversal of the Seaway pipeline — to be built, he said.

"I think, in a lot of ways, having several horses in the race is good to gradually move further crude into that market."

His view is based on the enormous refining capacity on the Texas coast as well as huge volumes expected out of the oilsands and the Bakken field underlying parts of Saskatchewan, Montana and North Dakota.

Daniel said he would find it "surprising" if Keystone XL alternatives attracted the same vehement opposition.

"What we're talking about is expanding in existing right-of-ways and existing systems, putting further volume in existing systems in an incremental way, rather than in a big, new construction project,"he said.

Alex Pourbaix, president of energy and oil pipelines for TransCanada, had a much different take.

"I think it would be naive in the extreme to assume that if Keystone were to fail to receive its permit that those very same opponents of Keystone XL would not show up the very next day on any of those competing projects," he said in an interview.

Most opponents' broader goal is to undermine the Alberta oilsands, which environmentalists label a "dirty" source of crude.

"And if they see another pipeline project that is purporting to move Canadian oil into U.S. markets, I think you can expect that they will put every bit of the resources that they are presently putting against Keystone against that new project," said Pourbaix.

The outcry over Keystone XL is cause for concern, Daniel said.

"Opposition to something that is as well supported as XL is not a good precedent for the industry," he said. "We think it's very important to be able to keep this country and North America operating efficiently to be able to deliver energy to those that need it."

Enbridge's proposal to build twin pipelines between Alberta and the West Coast has been the focus of opposition from B.C. aboriginal groups, environmentalists and others over what a spill on the pipeline, or from a tanker on the West Coast, could have on northern B.C. ecosystems.

The goal of the $5.5-billion Northern Gateway project is to diversify Canada's customer base for crude exports, which currently go only to the United States. Northern Gateway would enable Asian countries to buy Canadian crude, ensuring the product gets a better price.

Enbridge says the pipeline would bring jobs and economic development to northern B.C. communities. But many of those groups say it's simply not worth it to endanger their way of life.

Community hearings into the proposal are set to begin in January, and so far 4,000 people are registered to speak. The National Energy Board panel is to make a recommendation to the federal cabinet on the pipeline by the end of 2012.

Earlier Wednesday, Enbridge said its third-quarter earnings dropped to $4 million, or a penny per share, from $157 million, or 21 cents per share a year earlier, on derivative losses.

Adjusted earnings, which filter out the mark-to-market values, increased to $241 million from $195 million.

On a per-share basis, adjusted earnings were 32 cents a share, ahead of average analyst expectations of 28 cents per share, according to a poll by Thomson Reuters.

Revenues were $4.3 billion, up from $3.5 billion at the same time a year earlier.

Enbridge expects to come in at the top end, or exceed, its 2011 earnings per share guidance range of $1.38 to $1.48.

In addition to is pipeline business, Enbridge is also a major distributor of natural gas in Ontario and a growing producer of green energy.

It is also becoming a bigger player in the Canadian gas processing business, picking up a 71 per cent interest in the Cabin gas plant in northeastern B.C. this fall.

Enbridge shares fell 34 cents to $35.01 Wednesday on the Toronto Stock Exchange.