Spills Plague Canadian Pipeline Operators
Phillip is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As if having a proposed pipeline rejected by the British Columbian government wasn't enough, Enbridge (TSX: ENB) now faces a heap of criticism that could send shares falling.
The Canadian pipeline operator is dealing with the mess that was caused by a spill of about 750 barrels of crude oil on June 23 in Alberta, resulting in the company shutting down three of its pipelines.
The spill comes less than a month after Enbridge was officially denied by the B.C. government permission to run a 730-mile pipeline from Alberta to the B.C. coast. Many opposition groups have also opposed the pipeline, as it appears harder for oil giants to expand to increase profits.
As if the spill and pipeline rejection wasn't enough, the company has throughout its history spilled approximately 133,000 barrels of oil, which is roughly half the 257,000 barrels of the Exxon Valdez spill. That history doesn't bode well for future projects, and that was evidenced in a damning report from Simon Fraser University, which said a spill on the Northern Gateway Pipeline is likely. That was one of the contributing factors in the B.C. government denying the project and is a sign to shareholders that Enbridge faces increased challenges expanding in the future.
Another proposal from Canada
The TransCanada (NYSE: TRP) Keystone XL Pipeline Project, which would carry crude from Alberta to Steele Creek, Nebraska, could also be effected by the Enbridge spill and several others that have sprouted throughout Alberta. Furthermore, a former TransCanada employee turned whistle-blower could damage this stock after calling the practices at the firm "organized crime." However, the Keystone Project looks to have the approval of Joe Oliver, U.S. federal natural resources minister.
According to the firm's first-quarter earnings release, the company is on the verge of completing $12 billion worth of investments, including the Keystone XL, Keystone Hardisty Terminal, the Gulf Coast Project, the first phase of the Tamazunchale Pipeline Extension, the Grand Rapids Pipeline, the NGTL System expansion, and the acquisition of nine Ontario Solar projects. For now, it looks like TransCanada has been able to shake the bad press from the spills, but with several projects still not approved, the firm may have challenges seeing the projects to completion.
Early in June, Kinder Morgan Energy Partners (TSX: KMP) reported a small leak in the Trans Mountain pipeline. That pipeline follows a similar route as the proposed Enbridge line. However, the firm is still looking to grow, with the June 5 announcement of the expansion of the Bostco Oil Terminal in Houston. But the firm is at risk of not profiting in the years ahead, due to the fact that companies in this sector require a lot of capital to invest in various projects. In order to sustain growth, the firm is spending a lot of money acquiring or investing into new pipelines to keep up growth. Furthermore, the company has more current liabilities than it does current assets. In fact, the current assets to current liabilities ratio is 0.74.
Oil firms face increased scrutiny
Also earlier this month, Apache reported a spill of 2.5 million gallons of contaminated water in Alberta, and Plains All American Pipeline also spilled 950 barrels in Alberta. Despite oil companies defending their expansion efforts by saying they have healthy track records, there have been a spate of spills recently that put into question the safety of oil pipelines. That damages the ability of these companies to grow, and the Enbridge spill is just the latest example.
There are many different ways to play the energy sector, and The Motley Fool's analysts have uncovered an under-the-radar company that's dominating its industry. This company is a leading provider of equipment and components used in drilling and production operations, and poised to profit in a big way from it. To get the name and detailed analysis of this company that will prosper for years to come, check out the special free report: "The Only Energy Stock You'll Ever Need." Don't miss out on this limited-time offer and your opportunity to discover this under-the-radar company before the market does. Click here to access your report -- it's totally free.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!