(Reuters) - Enbridge Inc (ENB.TO), Canada’s second-largest pipeline company, said it will buy some gas facilities from Encana Corp (ECA.TO) in the Peace River Arch region in northwestern Alberta to strengthen its natural gas gathering and compression business.
Enbridge, whose pipelines carry the bulk of Canada’s oil exports to the United States, said its total investment in the region is expected to be about C$264 million ($266 million) after construction of all the facilities is completed in 2013.
Enbridge has been looking to strengthen its Canadian gas gathering and compression business, while Encana, Canada’s biggest gas producer, has been shifting to more profitable oil and liquids-rich gas production. Dry gas prices are under pressure due to an oversupply of the fuel in North America.
“This agreement in the Peace River Arch region represents another step in the execution of our strategy to establish a strong position in the Canadian midstream business,” said Leon Zupan, president of Enbridge’s gas pipelines unit.
Enbridge faced fresh political opposition to its C$6 billion Northern Gateway pipeline on Monday, when British Columbia Premier Christy Clark was reported as saying that any move by the federal government to push through the controversial project would lead to national political crisis.
The Northern Gateway is a proposed 525,000 barrel-a-day line that would transport crude from Alberta’s oil sands to Kitimat on British Columbia’s Northwest coast for shipment to Asia.
Enbridge shares fell more than 1 percent to C$39.05 on the Toronto Stock Exchange, while Encana shares fell 5 percent to C$22.56 as Canada’s rejection of a foreign bid for Progress Energy Resources Corp (PRQ.TO) rippled through energy stocks.
Enbridge said on Monday it would defer the commissioning of Phase 1 and the construction of Phase 2 of the Cabin gas plant in British Columbia’s Horn River Basin, a gas-rich shale formation where Encana is one of the dominant producers.
The company, interested in liquefied natural gas projects being developed in British Columbia, owns a 71 percent stake in the Cabin gas plant, including the 57.6 percent interest it bought from Encana.
Analysts said the deferment is actually good news for Enbridge as it will begin receiving fees for investments made in the Cabin gas plant, starting December.
“They will defer the commercialization of Phase 1. So they may not be starting facilities but are going to receive their fees as they would originally,” said analyst Juan Plessis of Canaccord Genuity.
Phase 1 was expected to be in-service in the third quarter of this year, while phase 2 was expected to be ready in the third quarter of 2014.
“What is happening now is ... they are going to stop construction of Phase 2 right now, but they will be able to receive fees on not only on Cabin Gas 1 but also on the capital they spend on Cabin Gas 2,” Plessis said.
“(The deferment) is probably a penny or two accretive to EPS to Enbridge in 2013 and a penny or two accretive in 2014.”
Analyst David McColl of Morningstar said the deferment is probably due to weak natural gas prices.
“When we look at the North American market for natural gas, the economics just aren’t pushing for the rapid development of Cabin,” he said.
Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Don Sebastian and Saumyadeb Chakrabarty