Is the North American pipeline sector about to be consumed by merger mania?
With Enbridge Inc. planning a $28 billion takeover of Spectra Energy Corp., some investors say the industry’s in store for more deals as pressure mounts on the likes of Enterprise Products Partners and Kinder Morgan to follow suit. The biggest pipeline deal of the year foreshadows a feeding frenzy as those companies that survived the collapse in oil and natural gas prices step up the hunt for bargains. TransCanada Corp. got the ball rolling with the $10.2 billion purchase of Columbia Pipeline Group Inc. this year.
“We’ve just come through a very tumultuous period,” said Libby Toudouze, a partner and portfolio manager at Cushing Asset Management in Dallas. “Being able to survive the trough in the energy cycle, especially one like this last one that was so long, means you have to be bigger, faster, stronger.”
Enbridge’s deal would vault the Calgary-based company into North America’s largest energy pipeline and storage player. It could also mark the beginning of the “supermajor” era for the industry, according to Rebecca Followill, head of research at U.S. Capital Advisors, since it might “light a fire in the bellies” of the larger pipeline players, setting off a wave of consolidation that could accelerate through the end of 2016.
“Enterprise Products Partners is the other big 800-pound gorilla out there,” Ms. Toudouze said. “This puts a little more pressure on them to try to do something in the space.”
A spokesman for Enterprise Products Partners didn’t respond to an inquiry seeking comment. Kinder Morgan declined to comment.
If Enbridge closes the deal to buy Spectra, it’ll lord over a network of pipelines stretching from the oil sands of Alberta, Canada, to the coasts of southern Florida. It’ll be plugged into population centers from Seattle to Boston and from Houston to Montreal.
“This is two successful companies thinking they’ll be even more successful together,” said Skip Aylesworth, who oversees the Hennessy Gas Utility Fund. “This is a good deal for shareholders. If you look at the maps and overlay them, they’re very complementary.”
TransCanada made a similar play after getting stymied on the Keystone XL pipeline. This spring, it bought Columbia Pipeline Group to create a network spanning from Canada to Mexico. Such deals may proliferate as opposition mounts against new projects across North America. Protesters in Montreal last week disrupted hearings on a proposed TransCanada line.
First Published September 9, 2016, 5:38 a.m.