Enbridge cites economic uncertainty, a challenging regulatory environment, higher interest rates and fierce competition for growth
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Citing persistent economic headwinds, Calgary-based pipeline giant Enbridge signalled it’s going to cut its workforce by 650 people next month, while the midstream sector faces a changing landscape.
The energy infrastructure firm, which has a large presence in both Canada and the United States, sent a memo Tuesday informing its staff of planned cuts across the company, which will begin in February and be completed by March 1.
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“After careful evaluation, Enbridge has made the difficult, yet necessary, decision to reduce its workforce,” the company confirmed in a statement.
“While we delivered strong financial performance in 2023, cost-reduction measures are necessary to maintain our financial strength, be more cost competitive and enable us to grow.”
In the memo, Enbridge pointed to ongoing economic uncertainty, a challenging regulatory environment, higher interest rates, fierce competition for growth, and the reverberations from geopolitical developments for contributing to “increasingly difficult business conditions.”
According to its website, the company has more than 12,000 employees, mainly based in Canada and the United States. The cuts represent slightly less than six per cent of its total workforce.
Enbridge said it will look to reduce vacancies and contract positions, as well as redeploy staff.
“Reducing our operating costs and strengthening our competitiveness will enable us to weather near-term challenges,” the statement said.
Analyst Stephen Ellis with Morningstar noted pipeline companies in the North American industry aren’t benefiting as much from service rates that are tied to inflationary increases as they have in recent years, while rising interest rates have heightened their need to focus on cost-cutting.
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“It does seem appropriate for the current environment, given some of the headwinds . . . but it doesn’t seem like, in my opinion, it marks a larger shift in overall Enbridge strategy,” Ellis said in an interview.
During the third quarter of 2023, Enbridge reported adjusted earnings of $1.27 billion, down from $1.37 billion during the same period in 2022.
Enbridge is the largest pipeline company in Canada and the sector has been facing a shifting landscape during the energy transition.
Last September, Enbridge bought three U.S. natural gas utilities — East Ohio Gas Co., Public Service Company of North Carolina (PSNC) and Questar Gas Co. — from Richmond-based Dominion Energy for $19 billion.
The acquired companies have more than 3,000 employees. The deal was the largest acquisition for Enbridge since 2016, when it bought Houston-based Spectra Energy for $37 billion.
In December, Enbridge sold off its interest in the Alliance natural gas pipeline and the Aux Sable joint ventures for $3.1 billion.
Enbridge, which operates Canada’s Mainline crude pipeline network, will soon see increased competition from the Trans Mountain expansion project, Ellis noted.
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The $30.9-billion development, which is now expected to begin operating in the second quarter after another construction challenge, will increase the capacity of the existing line that moves Alberta oil to the Pacific coast by 590,000 barrels per day.
Calgary-based TC Energy, which has aggressively sold assets in the past year, is also planning to spin off its oil pipeline network — including the Keystone system — into a new publicly traded company named South Bow. The move is expected to occur in the second half of this year.
Laura Lau, chief investment officer with Brompton Group, which has previously owned stock in Enbridge, said Tuesday the midstream sector is facing increased pressure due to the effect of high interest rates and the difficulty to build major infrastructure projects in Canada and the United States.
She pointed to Friday’s decision by the Biden administration to put a temporary pause on approving new LNG export projects as another example of government policy that could impede the industry.
“It used to be, in the good old days, you could do these big projects. It’s harder to find growth now and it’s harder to make numbers work with higher interest rates,” Lau said.
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“The operating environment is getting tougher and tougher for permitting.”
There have been some layoffs in the Canadian oilpatch in the past year, with Suncor Energy announcing last summer it was cutting 1,500 positions.
The Canadian economy has largely stalled since the middle of 2023. It’s expected to remain weak in the first quarter before growth gradually resumes, with an annual GDP expansion of just under one per cent forecast by the Bank of Canada’s latest monetary policy report.
Meanwhile, energy prices have dipped in recent months and it could mean less cash flow for the country’s oil and gas industry in 2024.
Based on the current pricing outlook for oil and natural gas, industry revenues in Canada are projected to drop by 12 per cent to $162 billion from last year’s levels, said Jackie Forrest, executive director of ARC Energy Research Institute.
Lower cash flow levels and uncertain government policy make it more difficult for the energy sector to invest.
“The lower commodity prices are putting a bit more fiscal pressure (on). I’m not sure that will result in layoffs but, for sure, you’re going to see the slowdown in spending,” Forrest said.
“Add to that the massive policy that we’re getting here — the layering of policy on top, potential for legal challenges, political uncertainty. I think that’s another factor that’s going to slow down investment over the next year.”
Chris Varcoe is a Calgary Herald columnist.
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2024-01-30 23:48:45Z
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