A merger proposed between Canadian firm Enbridge and Houston-based Spectra Energy Corp. could create the largest energy infrastructure company in North America.

The companies announced on September 6 that they have entered into a definitive agreement to combine in a stock-for-stock merger transaction that has an enterprise value of $127 billion. The transaction was reportedly approved by both companies’ boards of directors and could close in the first quarter of 2017, if shareholders and regulators approve it.

If completed, Enbridge shareholders would hold 57% and Spectra shareholders would own 43% of the combined company, which is to be called “Enbridge Inc.” It would be headquartered in Calgary, Alberta, though Houston would remain the company’s gas pipelines business unit center.

The merger would bring together the companies’ myriad energy infrastructure assets in North America, including liquids and gas pipelines, U.S. and Canadian midstream businesses, a regulated utility portfolio, and several renewable projects.

“Enbridge has been assessing opportunities to extend and diversify our sources of growth,” Enbridge President and CEO Al Monaco told investors in a webcast on Sept. 7. “We’ve been talking about that for a couple of years. That’s what our shareholders expect of us and it’s one of the things that this combination delivers.”

Monaco, who would head the new company, said that Enbridge’s objective wasn’t so much to grow bigger. “It’s about growing cash flow and earnings per share that matters. But it is a fact that scale mitigates exposure to industry downturns and a challenging project execution environment and will generate new, large and more diverse opportunities for us.”

Another driver for both companies is the fundamentals of supply and demand. The companies’ assets are said to be well-positioned for growth on the liquids side, and especially on the gas side, where some projections suggest annual growth could surge 3% to 5%, driven by a number of factors.

“More gas will be needed for power generation as coal plants phase out. And a new area today, a global gas connectivity, which means significant demand for North American [liquefied natural gas] supply, and of course, exports to Mexico, which by the way, Spectra has already capitalized on with the Valley Crossing Pipeline project. The point is that energy fundamentals for infrastructure are strong and will drive expansion and extension opportunities for a lot of years to come,” Monaco said.

 

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)