11/16/2011 09:09 EST | Updated 01/16/2012 05:12 EST

Enbridge pays US$1.15B for 50% of Seaway pipeline in southern U.S

CALGARY - Enbridge Inc. is paying US$1.15 billion for a half-stake in an oil pipeline that stretches from the Gulf Coast to an overloaded storage hub at Cushing, Okla., the latest move by a Canadian company to capitalize on a push to feed hungry U.S. refineries.

The 805-kilometre Seaway Pipeline carries crude brought into the U.S. Gulf Coast by tanker north to Cushing, but Enbridge and its partner have decided to reverse its flow — the current route no longer makes sense, given the huge volumes flowing south from Alberta's oilsands and the Bakken region of Saskatchewan, Montana and North Dakota.

"The Seaway Pipeline reversal provides an early opportunity to offer Gulf Coast access to midcontinent producers and other crude oil shippers," said Enbridge chief executive Pat Daniel.

"A Seaway reversal will provide capacity to move secure, reliable supply to Texas Gulf Coast refineries, offsetting supplies of imported crude."

Enbridge rival TransCanada Corp. (TSX:TRP), meanwhile, said it may be possible to build the southern leg of its own Alberta-to-Texas pipeline, Keystone XL, as early as next year in a move also designed to drain supplies from Cushing.

The Seaway deal came as oil prices pushed higher, with the December contract for benchmark West Texas Intermediate closing up $3.22 at US$102.59 a barrel — topping $100 per barrel for the first time in nearly four months.

Calgary-based Enbridge (TSX:ENB) is buying its 50 per cent stake in Seaway from ConocoPhillips, which announced earlier this year it would split itself up into two separate companies — one that would explore for and produce petroleum and another that would refine and market it.

Enbridge will be partners with Enterprise Products Partners LP (NYSE:EPD). The two had already been working together on a Cushing-to-Gulf line called Wrangler, which they still intend to move forward.

"The Seaway acquisition and reversal fits well with the work on the Wrangler Pipeline project that Enbridge and Enterprise are jointly pursuing," said Enbridge spokeswoman Gina Jordan in an email.

"The need for additional capacity beyond a reversed Seaway still exists. Enbridge is exploring several options to provide shippers with access from Cushing to Gulf Coast refineries."

The Seaway pipeline will initially be able to carry 150,000 barrels per day by the second quarter of 2012. Following additional pump stations and modifications, capacity will increase to 400,000 barrels per day by early 2013.

News of Enbridge's Seaway plans came as TransCanada held an investor conference in Toronto.

"Seaway is an interesting project for them and it certainly helps out with the glut in Cushing," said Alex Pourbaix, TransCanada's president of energy and oil pipelines.

"I think from our perspective there's enough oil for both us and Enbridge and Enterprise to compete."

The Keystone XL project has pitted environmental groups and local landowners along the pipeline's route against energy producers and various interests that want to wean the United States off oil from the Middle East and countries such as Venezuela.

On Monday, TransCanada agreed to change the route of the Keystone XL pipeline to avoid the ecologically sensitive Sandhills region of Nebraska — following a delay imposed by the U.S. State Department in a move that's widely seen as a way for President Barack Obama to avoid making a decision until after the 2012 election.

Pourbaix said it may be possible for TransCanada to tackle the Cushing-to-Gulf leg of Keystone XL as early as the new year, provided the State Department is OK with it.

"Out of an overabundance of caution on our own side, we would want to make sure that everybody at the State Department would be happy with that kind of a proposal."

TransCanada chief executive Russ Girling welcomed the stepped-up competition from Enbridge.

"It creates options for the marketplace to move those growing supplies to market and it's options that those shippers and producers and refiners are going to need as domestic supply continues to grow in the United States."

Enbridge and TransCanada are both looking to access the Gulf Coast because there has been a dramatic shift in where the United States gets its oil supplies, said Katherine Spector, commodities strategist with CIBC based in New York.

"There's a reason that most of our pipelines go from the U.S. Gulf to the mid-continent. It used to be that there was not a lot of local supply and they had to pull up barrels from the Gulf for those refiners to run," she said.

"Obviously that's changed. We have a significant increase in Canadian supply. We have a significant increase in Bakken supply. But the number of refiners hasn't really changed."

The first phases of TransCanada's Keystone system are a major contributor to this trend. In the summer of 2010, deliveries began to Illinois refineries, and then in February of this year, crude started flowing into Cushing.

Lanny Pendill, an analyst with Edward Jones, said it's possible for more than one pipeline — or even a combination of Wranger, Keystone XL and Seaway — to go ahead.

"Pipeline capacity coming out of Cushing and to the Gulf Coast is greatly needed, and I think it's going to take more than one pipe," he said. It may just mean that Enbridge's proposals jump ahead of Keystone in the queue.

Alberta Premier Alison Redford told a Toronto business audience Wednesday that she was glad to hear about the plan to reverse the Seaway pipeline and especially that a Canadian company was involved.

"It's something that is part of what a lot of the dialogue has been about in Alberta in terms of looking for other options," she said.

Girling said he doubts the environmental groups that railed against Keystone XL will give the rival proposals an easier ride.

"It would be extremely naive to assume that they will go away tomorrow," he said.

The projects still need to go through the National Environmental Protection Act process, as well as a number of state-level reviews, he said.

Also Wednesday, ConocoPhillips said it is selling its 16.55 interest in the Colonial Pipeline Company and Colonial Ventures LLC to Caisse de depot et placement du Quebec, one of Canada's largest pension fund managers.