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. earlier in the 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 also could mark the beginning of the “supermajor” era for the industry, said Rebecca Followill, head of research at U.S. Capital Advisors, because 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,” 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 immediately respond to an email seeking comment. Kinder Morgan declined to comment.


Spectra Energy is an important player in Maine’s energy scene.

The Maine Public Utilities Commission gave conditional approval in July to a controversial plan in which electric customers would help subsidize natural gas pipeline expansion projects, including Access Northeast. The future of that project, which would expand capacity on Spectra’s Algonquin system in southern New England, is in question now, following a court ruling in Massachusetts.

Spectra also is the lead owner of the Maritimes & Northeast Pipeline, the 889-mile system running from Nova Scotia through Maine to Massachusetts.

If Enbridge closes the deal to buy Spectra, it will control 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 stretching from Canada to Mexico. Such deals may proliferate as opposition mounts against new projects across North America.


Last week, protesters in Montreal disrupted hearings on a proposed TransCanada line. Several arrests were also made at a site in North Dakota where Energy Transfer Partners is trying to build a line to Illinois.

“This is the market adjusting to that kind of mentality,” said Jay Hatfield, chief executive officer of Infrastructure Capital Management, a New York-based hedge fund. “Existing pipelines are worth a lot. Long-haul pipelines like Spectra has, particularly the natural gas pipelines, are worth probably 20 times Ebitda, not 15 times, which is what they’re trading at.”

Ebitda, a measure of income watched closely by some analysts and investors, is short for “earnings before interest, taxes, depreciation and amortization.”

Meanwhile, Enbridge is offering Spectra shareholders a 12 percent premium in the stock-for-stock deal. That’s in line with the 11 percent premium that TransCanada offered for Columbia.

Energy Transfer Equity’s failed bid for Williams Cos. this year – another effort to create a pipeline behemoth – may put it at a disadvantage in this latest round of consolidation as it seeks to lower its debt level, Aylesworth said. Williams, too, may find itself distracted by a looming proxy fight. Meanwhile, new players could emerge in the sector, such as private-equity funds. “Kinder Morgan can play the game,” Aylesworth said. “I’d anticipate they might play around a little bit.”

Williams CEO Alan Armstrong said in an Aug. 1 interview that he’s focused on leading the company as a standalone entity. Energy Transfer’s Kelcy Warren said in an Aug. 12 interview that his company is “gearing back up” with an acquisition strategy and that the “doors are open” for possible deals.

“It’s a chess match, and I think you’re going to see some more players, more pieces in the action,” Aylesworth said. “As you piece this puzzle together, there will be little pieces missing, and somebody with those little pieces – they become valuable.”

Press Herald Staff Writer Tux Turkel contributed to this report.

Only subscribers are eligible to post comments. Please subscribe or login first for digital access. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.