Calgary – On Sept. 29, a sale affecting nearly every drop of oil produced in southeast Saskatchewan took place, when Tundra Energy & Marketing Limited (TEML) announced it had purchased the South East Saskatchewan pipeline system from an affiliate of Enbridge Income Fund for $1.075 billion.
Closing of the transaction is expected to occur in late 2016 and is subject to various regulatory approvals.
The sale comes on the heels of Enbridge’s recently announced merger with Spectra Energy.
“In conjunction with the proposed Spectra Energy merger, we announced our intention to divest of approximately $2 billion of non-core assets over the next year to further strengthen Enbridge Inc.’s consolidated balance sheet and provide for additional financing flexibility,” noted Enbridge executive vice president and chief financial officer John Whelen. “The sale of these regional gathering pipelines by (Enbridge Income Fund Holdings Inc.) not only provides an efficient source of financing for the Fund’s organic growth program, but also immediately addresses about one-half of our monetization target while displacing equity that we would otherwise need to raise through the issuance of new capital.”
The Southeast Saskatchewan Pipeline System, previously known as Enbridge Pipelines (Saskatchewan) Inc., or EPSI, includes over 1,600 kilometers of crude oil and liquids gathering pipelines, approximately 547 kilometers of trunk line and four truck terminals. It does not include the Bakken Expansion Pipeline built from North Dakota to Cromer, Man., in 2013.
The system currently transports approximately 175,000 barrels of crude oil per day to Enbridge’s Mainline system at Cromer, Man, where the main terminal of TEML’s Manitoba crude oil gathering system and interconnection with Enbridge’s Bakken Expansion Pipeline is also located. With the exception of small volumes of oil being shipped out of the region by rail, nearly all crude oil produced in the southeast Saskatchewan is marketed via this pipeline system.
The purchase comes on the heels of TEML’s purchases last year of other Enbridge pipelines in southwest Manitoba that used to be part of EPSI. Upon closure, TEML will operate effectively the entire gathering network for both southeast Saskatchewan and southwest Manitoba – essentially all of the Canadian portion of the Williston Basin.
Following the closing of this transaction, TEML will handle over 250,000 barrels per day of crude oil production from Saskatchewan, Manitoba and North Dakota. It will also continue to have over 700,000 barrels of crude oil storage capacity and the ability to load unit trains for its customers at Cromer.
Hartley T. Richardson, president and chief executive officer of James Richardson & Sons, Limited, TEML’s parent company, said in a release, “Throughout JRSL’s 159 year history, our primary focus has been moving Canada’s commodities to North American and global markets in a safe and efficient manner. This transaction will further that tradition, and we look forward to welcoming our new employees to the JR Group of Companies.”
Bryan Lankester, president of TEML, spoke to Pipeline News on Oct. 5. Asked what brought on this purchase, he replied, “We’ve been in operation in Cromer, Manitoba, since 2005, building infrastructure like the rail facility plus 700,000 barrels of storage. We’ve been expanding. What brought this on was our business plan to continue expanding in the Williston Basin,” Lankester said.
TEML already has an interconnection between the Westspur System and their facility. It was put in place in August 2015. It allowed producers in southeast Saskatchewan to store product in TEML’s tanks, and to be re-shipped into Enbridge. They also have a rail facility, connected by pipeline, located a few kilometres east of their main terminal, on a CN rail line, which producers can make use of. However, the economics for crude-by-rail aren’t there right now. “The Brent to WTI differential has closed back in. It went out to high amounts there and rail filled that gap. Since then, there’s very little crude on rail going anywhere from Canada.”
There’s some use of their rail facility, but very little compared to two years ago.
At this time, there are no plans to expand their overall Cromer facilities.
TransCanada’s Energy East Pipeline proposal includes plans for a terminal at Moosomin and a “Cromer Lateral,” a 71 kilometre pipeline which would originate just northwest of the Enbridge terminal at Cromer. Asked if that proposal was tied into TEML’s plans, Lankester declined to comment.
“Producers in southeast Saskatchewan will benefit from this transaction by providing better access to rail loading and storage,” Lankester said. “All producers want access to alternative markets. We provide access to alternative markets in a seamless manner.”
TEML is 100 per cent owned by the Richardson family, the same family which owns Tundra Oil & Gas Limited, Richardson International Limited, Richardson Pioneer, as well as other financial and real estate ventures. The parent company is James Richardson & Sons, Ltd., a company that pre-dates Canada’s birth as a nation, with roots going back to 1857. However, TEML is a distinct company within that ownership. Lankester explained, “We started out as the marketing arm for Tundra Oil & Gas. In 2012, we were spun off as a separate entity with a mandate to grow business. That’s when we started building the storage tanks, rail loading facility and connection to Westspur.”
Jobs coming back to Estevan
By purchasing these assets from Enbridge, TEML becomes a much larger entity. The acquisition adds another 175 people.
While Enbridge characterized the sale as “non-core” assets, this acquisition will very much be the core of TEML going forward.
And that’s a key message Lankester wants to get out. They’re offering all existing employees jobs within the company. “Everyone will be retained,” he said.
Estevan had a control facility for the EPSI system that was moved to Edmonton two years ago. “It will be repatriated as part of this transition back to Estevan,” Lankester said. “We look at Estevan as being the head office of operations for TEML. We’re dedicated to maintaining that office and its role as of running the pipelines.”
John Williams will continue running the operation in Estevan.
“I think it’s a good news story for southeast Saskatchewan. We’re repatriating jobs from Edmonton back there. That’s the centre of our Williston Basin operations and it’s going to remain that way.”
He added, “This is good for Estevan. It’s good for the producers down there, is our thought. We’re focused on that area. We put capital into the facilities there. We built the storage tanks. We’ve invested a lot into infrastructure for producers in the Williston Basin. And that’s not going to stop.
“For Enbridge, it was a smaller asset. For us, this is our home area. This is where we’re going to put our efforts into building in the future.”
Pipeline safety and possible spills became a significant issue in Saskatchewan this past summer when a 16 inch Husky gathering system line leaked near the North Saskatchewan River, north of Maidstone, and contaminated the river for hundreds of kilometres. Asked about TEML’s fiscal capacity to deal with potential catastrophic failures like this, Lankester noted their parent company is a multi-billion dollar company, and there is also a role for insurance.
Pipelines don’t change hands that often. Lankester said the fact Enbridge, a good operator, had been operating this pipe for 20 years was one of the reasons they were interested in it.
Enbridge Pipelines (Saskatchewan) Inc. has been a strong community supporter over the years. This past summer alone, they were a lead sponsor of the Saskatchewan Summer Games held in Estevan, for instance, and have supported numerous charitable organizations throughout the year. “That will continue,” Lankester said. “We are dedicated to supporting the Estevan community as Enbridge has done in the past. They’ve provided a lot of support in southeast Saskatchewan, and we intend to continue that tradition.”
History of Saskatchewan gathering network
1955 – Creation of Producers Pipelines Limited and Westspur Pipe Line Company, and initial construction of the Westspur mainlines and Producers gathering system began.
1971 – Dome purchased Producers Pipelines Limited and Westspur Pipe Line Company.
1985 – Producers Pipelines Inc. and Westspur Pipe Line Company (1985) Inc. purchased liquids pipeline assets back from Dome. Dome retained ownership of the gas pipeline system.
1992 – Producers Pipelines Inc. purchased a Weyburn area gathering system (original construction in 1957) from Norcen and rebranded it Weyburn Pipelines Inc.
1993 – Producers Pipelines Inc. purchased a Virden MB area gathering system (original construction in 1955) from Norcen and rebranded it Virden Pipelines Inc.
1995 – Interprovincial Pipe Line purchased Producers Pipelines Inc., Westspur Pipe Line Company (1985) Inc., Weyburn Pipeline Inc., and Virden Pipeline Inc.
1998 – Interprovincial Pipe Line rebranded in entirety as Enbridge, with the SE Saskatchewan and Manitoba systems being renamed Enbridge Pipelines (Saskatchewan) Inc., Enbridge Pipelines (Westspur) Inc., Enbridge Pipelines (Weyburn) Inc., and Enbridge Pipelines (Virden) Inc.
2013 – Construction of the Enbridge Bakken Pipe Line Company Inc. 16” pipeline from Steelman to Cromer.
2015 – The majority of assets held by Enbridge Pipelines (Virden) Inc. were sold to Tundra Energy Marketing Ltd.
2016 – Pending sale of Enbridge Pipelines(Saskatchewan) Inc., Enbridge Pipelines (Westspur) Inc., Enbridge Pipelines (Weyburn) Inc., and the remaining Enbridge Pipelines (Virden) Inc. assets to Tundra Energy Marketing Ltd.