Enbridge has had a great run the last few years. Shipments of crude oil on its pipeline system have grown 25 per cent per year since 2013. The company moved a record two million barrels per day in 2015 and the dividend-adjusted, five-year return to investors has been 5.5 per cent.
“In the beginning, we didn’t build enough trust, particularly with the First Nations communities.”
Now let’s get this straight: Enbridge is a pipeline company at a time when anything “pipeline” attracts protestors; it was responsible for the rupture in Michigan in 2010 that spilled a million gallons of crude into the Kalamazoo River; and, in the public consciousness, at least, it’s better known for the much-delayed, moderately opposed Northern Gateway pipeline than anything else. Beyond all that, the past few years are best known for economic turbulence and low oil prices.
But through it all, Enbridge has grown to be Canada’s fourth-largest publicly traded company, one of North America’s largest energy infrastructure companies and a darling of investors. It is in the final stages of closing a $37-billion deal with Houston-based Spectra Energy that analysts say give it a strong weighting of oil and natural gas assets for the long term.
The man at the centre of the fray is Al Monaco, the 57-year-old, 6’ 3”, fit middle son of Italian immigrants. He started at Enbridge in 1995 and has been CEO for four years. In that short time, he’s opened up more than a million barrels per day of pipeline capacity for his customers, expanded the company into renewable energy and aggressively moved into natural gas. He has taken a progressive, public stance on climate change, lending corporate support to the provincial government’s Climate Change Advisory Panel last year. He’s positioning Enbridge for a carbon-constrained world and says energy companies can successfully transition to that world by having world-class technology and capabilities, a solid climate change plan, equity partnerships with First Nations and the trust of communities.
To get an hour in Monaco’s schedule, I show up at the Enbridge tower in Edmonton at 7 a.m. on a Friday morning and am ushered into the video-conference room. “I was in earlier today,” he says cheerfully while settling in front of the camera in Calgary. “That’s not something I’m proud of, by the way – it’s not the amount of hours you put in. But getting in early gives me a chance to think about the day and what the meeting schedule is like.”
And you can be sure it’s busy. Enbridge has about 12,000 employees and major offices in Calgary, Edmonton, Toronto, Duluth, Minnesota and Houston, Texas. It had revenues of $34 billion last year and is in the middle stages of the corporate integration with Spectra. “The key element of success in this kind of large transaction is integration,” Monaco says. “The planning for that integration is being done right now because on day one, you want to be ready to roll.” The deal is expected to close in the first quarter of 2017.
Prior to joining Enbridge Monaco worked in the corporate finance group at Home Oil, a small Calgary-based exploration and production company. He says his time there taught him about his current customers and how they look at the transportation of their goods. At the time he was also in the midst of completing an MBA at the University of Calgary, which he’d been working on part-time and finished in 1997. He and his wife, Laurie, were also raising three young sons. “I had a job that was fairly time-consuming and three little kids,” he says. “It’s hard when you’re taking a part-time MBA.”
“Where the industry has evolved to is to say, ‘OK, we think it makes sense to have a price on carbon, but if you really want to do a job on it, then you have to look at consumption, not just the supply end of it.’ ”
During Monaco’s rise through the corporate ranks at Enbridge, he served for a time as the vice-president of green energy. Enbridge has been ahead of the curve when it comes to investing in renewables, beginning 15 years ago with a small wind energy project in Saskatchewan. Under Monaco’s watch, the company became a leader in the country’s renewables sector, investing in projects and taking an active role with the Canadian Wind Energy Association (CanWEA). Canada has the seventh largest wind energy fleet in the world, and Enbridge is one of the four big players, with 22 wind and solar projects generating almost a gigawatt of energy. Robert Hornung, the president of CanWEA, says when he first met Monaco he recognized a kindred spirit when it came to the changes facing the energy sector. “For companies to succeed, it requires nimbleness, diversification and continual evolution,” Hornung says. “Under Al’s leadership, Enbridge has positioned itself to be an active participant in not only the energy economy of today, but in the energy economy of the future.”
To that end, Enbridge has aggressive plans to double its renewable generating capacity by 2019, spending $5 billion along the way. Most of those projects won’t be in Canada. The 400-megawatt Rampion wind project, for instance – in which Enbridge bought a 25 per cent stake for $750 million in 2015 – is now under construction in the English Channel. And last May Enbridge paid $282 million for 50 per cent of Eolien Maritime France, which is building three wind farms off the coast of France with a total capacity of 1.2 gigawatts.
Monaco says the economic case for renewables is strong.
The cost of the associated technologies continues to come down and projects are often underpinned by long-term contracts, usually for a guaranteed price. The French wind energy projects, for instance, come with 20-year power purchase agreements with Electricite de France. At the same time, carbon levies, like those being imposed by the Alberta government, deliberately favour renewables. These combine to make renewables a solid investment. “Those projects have to compete for capital, just like any of our other projects,” Monaco says. “There’s no doubt we had a big push on renewables over the last decade, but it was driven by the fundamentals and the fact that we could invest and still make a good return.”
The renewable energy generation is also an important plank in Enbridge’s broader climate policy. Monaco has been vocal about the need to transition to a low-carbon economy, and says energy companies need to take strong stands on climate policy. Enbridge was an active participant on the provincial climate change advisory panel last year. Monaco went so far as to second his chief sustainability officer, Linda Coady, to the panel. Andrew Leach, chair of the panel and an associate professor at the University of Alberta, says Monaco’s support was important. “I was a phone call away if I needed to talk to somebody on renewables, or we needed to talk to somebody on energy efficiency programs in Ontario,” he says. “To have that kind of buy in at the C-suite was important to us.”
Monaco has also voiced support for a carbon price applied universally through the economy. “That makes a lot of sense,” he says, “because it’s the best way to affect consumption. Where the industry has evolved to is to say, ‘OK, we think it makes sense to have a price on carbon, but if you really want to do a job on it, then you have to look at consumption, not just the supply end of it.’ ” A broadly based carbon price would do just that.
Enbridge’s climate policy also includes effective regulations, a greater emphasis on reducing demand and the use of technology to lower carbon emissions. Monaco points out that Enbridge’s gas distribution utility in Toronto has a number of programs that, ironically but appropriately, encourage less use of natural gas.
Monaco has overseen a period of strong corporate results and says the Spectra deal will help boost returns in the long term. “It comes down to sustaining our company for the future,” he says. “We have a great runway for next few years, but our job is really to look forward to the next decade or two out. That’s what drove it. How do we sustain the growth? How do we replicate our success going forward?”
The answer, in part, is a North America-wide footprint and a lot of natural gas assets. When you consider the map of the combined business (page 30), it shows pipeline assets across North America for oil, natural gas and natural gas liquids. “When you have assets in the ground, particularly in this environment, they’re very valuable,” Monaco says. “You can capture new value by extending them and expanding their reach.”
The key to the deal for Enbridge is Spectra’s natural gas asset base – both in distribution and in retail – in the lucrative U.S. northeast, which will help the company balance its portfolio. Back in 2000, Enbridge’s interests were split pretty evenly between oil and natural gas, but since then the oil part of the business took off, thanks largely to expansion in the oil sands. Enbridge became weighted that way, and eventually Monaco wanted more equilibrium. “We have a strong belief in the fundamentals of natural gas, but we were weighted to oil,” Monaco says. “So the diversification is in more natural gas and renewables, and a greater extent of the value chain in the transportation business in natural gas.”
One of Enbridge’s other big successes under Monaco was the completion of the Flanagan South and Seaway twin pipeline projects in January 2015. Flanagan goes from the U.S. Midwest into Cushing, Oklahoma, and Seaway continues to the Gulf coast. “We were able to get the first large-scale conduit right from Western Canada to the Gulf coast with those two connections,” Monaco says.
Leach says the pathway has been important in achieving fair market value for Albertan resources and credits Monaco’s leadership for the result. “That is a testament to the ability to react reasonably quickly to a market that has changed more than most people give credit for,” he says. “We’re only five or six years removed from Canadian shippers suing the U.S. regulator for approving too much capacity on the Enbridge Clipper pipeline.” At that time, the conventional wisdom was that you wanted to get barrels to the U.S. Midwest, which was going to be increasingly short of petroleum, to get the best price.
Enbridge’s infrastructure was weighted that way. But Leach says things have flipped since then, and the Midwest is the last place producers want barrels to go. “But since then Enbridge has realigned with the Seaway acquisition and reversal, the Line 9 reversal and expansions on the Mainline system to completely redo that map,” Leach says. “And without laying much greenfield pipe at all.”
“We just listen. What are their concerns? What is their view on the environment in the area? What drives them and what would they like to see?”
Other groups have been trying to do the same thing, but Enbridge had the advantage of being able to do it with projects in their existing network. The Spectra deal will only help in this regard. “It’s one of the things I’m most proud of,” Monaco says, “that during a period when there’s been so much opposition to energy development, we’ve been able to increase our capacity.” In total, the company has added about 1.7 million barrels per day of incremental capacity in recent years, and Monaco says customers are appreciative. “If you’re selling to one location, that’s not a good day,” he says. “You want to have options, and we’ve been able to access multiple markets with those expansions.”
Monaco spreads the credit around when discussing Enbridge’s success, from his closest lieutenants to the people who put the pipe in the ground . He says the biggest change in his job over the years has been the amount of time he spends developing relationships with communities. “It’s less about putting pipe in the ground – we still need to do that, we need to do it safely – but the part of the job that is different is that there’s a lot more emphasis on stakeholders,” he says. “My role is to develop relationships with stakeholders, whether it’s First Nations or other small communities or municipalities. You need to make sure that people know what you stand for as a company.”
And he’s in the trenches doing it. Elmer Ghostkeeper, from the Buffalo Lake Métis Settlement north of Edmonton, remembers the first community meeting he was at with Monaco. “A lot of these guys at that level never get to meet aboriginal people,” he says. “It’s always community liaison or people lower down the corporate structure who do the community work.” But he heard from, met and spoke to Monaco, and the trust, understanding and respect grew. “We’re pretty much on the same page,” he says. “We’re committed to building this pipe and I couldn’t wish for a better partner.”
Monaco says the key to building community support is to empty your mind of preconceived notions. “We just listen,” he says. “What are their concerns? What is their view on the environment in the area? What drives them and what would they like to see? It’s listen first and make sure you’re taking their advice because it makes your project better.” And he emphasizes the need to build coalitions. “People don’t listen to CEOs,” he says. “What we find is that people relate best to third parties, independent people, academics or union people, all of whom have a vested interest in moving forward in a sustainable way and have the greatest amount of credibility.” More and more, he adds, that includes environmental groups.
Monaco will vent some frustration over pipeline politics. He raises the matter of Enbridge’s efforts to reverse Line 9 in Ontario and Quebec so Western Canadian crude could flow eastward to refineries in Quebec. “This was a reversal,” he say, mildly exasperated.
“This is the simplest thing that you can do as a pipeline company, and yet it took us three years when it should have taken six months.” But then he simply goes back to his basic premise that he needs to get out there and talk about how Enbridge is going to perform. “You show them that your people care about what they’re doing, and build that trust and confidence in what you’re doing.”
He says he’s appreciative of Premier Rachel Notley’s efforts to build support for pipeline development, saying she’s done a good job of repositioning the province in a short period of time. “The conditions are there now to get people focused on the fact that Alberta is a world leader, and it’s not just the climate policy,” he says. “If you look at our regulations in Alberta, they have proven to be world class as well. Our industry, and its focus on technology – whether it’s land reclamation, improvements in water or energy intensity – the industry has done a fabulous job.”
Then there’s the $7.9-billion Northern Gateway pipeline, which was approved by the federal Conservative government in 2014. The approval was overturned earlier this year by the Federal Court of Appeal, which found that the government had failed in its duty to consult First Nations. This will be a stern test of Monaco’s new path to pipeline approvals through discussion and coalition building. To help the company’s chances, Enbridge and the six other partners on the pipeline have entered an agreement with the Aboriginal Equity Partners, a group of 31 First Nations and Métis communities along the pipeline’s route. The initial proposal was that any affected aboriginal community within 80 kilometres of the right of way could join the AEP, which would share a 10 per cent equity stake in the pipeline. “We felt that in this particular case it was extremely important to have a true nation-building structure to the project, whereby First Nations were at the table from A to Z,” Monaco says. That means not only listening to First Nations’ concerns about safety and environmental issues or offering jobs and contracts or rents. In this case, a significant equity stake was required. “The project really needed to reflect that First Nations had a big voice in all of this because it’s a greenfield project,” Monaco says. “So it really stems from that, where they have a true position in the project.”
Ghostkeeper is a steward of the AEP and has been in on the negotiations for years. He says 18 of the 19 affected communities in Alberta are onside. “That’s social licence,” he says. “We practically have unanimity. And in B.C., we’re gaining every day. Negotiation doesn’t stop. It’s a long game.” He says Monaco has some heavy lifting to do, and not just with First Nations. He also has to convince the other CEOs who have equity stakes in Northern Gateway. “He’s carrying a heavy load to make it happen, but this is the new way of doing business on aboriginal traditional lands,” he says. “It’s not going to happen anymore the way it used to be done.”
Does Monaco like Northern Gateway’s chances? “I don’t know. We’ll have to wait and see,” he says, “but regardless of what happens on Gateway, I’m extremely pleased with how our team has set things straight. In the beginning, we didn’t build enough trust, particularly with the First Nations communities. Since then, especially if you read the regulator’s report, particularly on how we engaged with First Nations, it was a vindication of our approach.”
Then he points out that Northern Gateway is just one small part of Enbridge, and that the approach the company now takes – emphasizing community trust, playing a leading role in moving to a low-carbon future and partnering with First Nations – will help the company down the road. He says it will allow us to move from confrontations between supporters and opponents of energy to a place of collaboration. “I think we’re moving in that direction already,” he says.
Why Buy Spectra?
The $37-billion deal to buy Spectra will create North America’s largest energy infrastructure company with more than 30,000 kilometres each of oil and long-haul natural gas pipelines. The deal gives Enbridge natural gas assets in the lucrative U.S. Northeast and a better balance overall between oil and natural gas holdings.