North American oil and gas pipeline executives used fourth-quarter 2020 earnings conference calls to detail how their companies are responding to the renewable energy transition as the U.S. reentered the Paris Agreement on climate change under President Joe Biden.
Executives also fielded questions about large pipeline projects impacted by regulatory delays and cost increases, and about the financial implications of an extreme winter storm in Texas and the U.S. West.
S&P Global Market Intelligence listened to midstream operators' earnings calls and compiled the most insightful comments on these issues. The standout quotes are in italics.
Preparing for the energy transition
Magellan Midstream Partners LP CEO, President and Chairman Michael Mears said an anticipated oversupply of crude oil transportation capacity out of the Permian Basin could push some midstream operators to convert their assets to accommodate other commodities, including greener fuels.
"It's likely if we get into that scenario that participants in the market will start evaluating conversions of their pipes to other services," Mears explained.
"I can tell you, we think about it — if the need is there — to do that with our pipes," he said. "... If you get into an environment where the margins are so low, all the contracts are gone, you have excess capacity, so everyone's fighting per barrel with extremely low tariffs, then there is going to be a huge incentive for people to look for economic conversions and take capacity out of the market."
Enterprise Products Partners LP was confident that it will not be forced to make such decisions. "Reading the news, some may think the sun is setting on oil and gas," co-CEO Jim Teague said. "I'm not sure we can spell 'defense.' We're always on the offense. … I'm a believer in the Permian. I'm a believer in the Eagle Ford."
LNG exporter Cheniere Energy Inc. announced it plans to start providing customers with greenhouse gas emissions data for every cargo it exports to respond to growing scrutiny of U.S. methane emissions.
"We've got to walk before we can run," Cheniere President and CEO Jack Fusco said. "There's a lot of misinformation out there. I think we're going to find out that U.S. LNG can be very … worldwide in helping with some of these countries' environmental aspirations."
TC Energy Corp. is eyeing an exit plan for the suspended Keystone XL crude oil pipeline project after Biden rescinded a key permit. That could include recouping some of the roughly $8 billion costs by selling materials.
"Our project team is evaluating what we can do with all of our equipment and its uses," said Bevin Wirzba, executive vice president and president of liquids pipelines. "The value of steel, in some cases, has increased, and certainly, there's a market for some of our spare materials, if we evolve to that point here."
Enbridge Inc., meanwhile, hiked its Line 3 replacement project costs by nearly $1 billion amid escalating environmental protests and heightened political scrutiny under the new presidential administration.
"The plan changed to winter construction, which means more manpower and equipment," CEO Al Monaco said. "The days are shorter, productivity is lower ... obviously, the regulatory delays, monthly running costs and carrying costs were higher. So not surprisingly costs have gone up, but ... once Line 3 is in service, it's going to contribute a lot of free cash flow."
Brookfield Infrastructure Partners LP announced on Feb. 10 an unsolicited bid to take Inter Pipeline Ltd. private for $13.5 billion as the Canadian operator's troubled Heartland petrochemical complex project overshadows equity value. Inter Pipeline responded by initiating a strategic review. It continues to search for a partner for the petrochemical project, but President, Director and CEO Christian Bayle said the company will still consider potential takeover transactions.
"The intention is to evaluate a broad range of corporate options, one of which obviously is a possible corporate transaction, and I think it's fair to say that the board certainly wouldn't preclude including Brookfield into that process if they wish to participate," Bayle said.
Brookfield made a formal offer just a few days later, but Inter Pipeline urged shareholders to take no action on Feb. 22.
Producer lessons learned
With past mistakes in mind, oil and gas drillers are not interpreting rising commodity prices as a signal to ramp up production, according to DCP Midstream LP.
"This one feels a little bit different from a potential upcycle point of view, [so] that people don't come roaring back immediately and then kind of start crashing and destroying our own party again," Chairman, President and CEO Wouter van Kempen said.
"When I talk to our producer customers ... I hear a little bit more bounce in their step, a little bit more optimism, but a lot of discipline and saying, 'Hey, we're going to deliver free cash flow. We're not going to go out and just kind of throw rigs back in the field and creating a significant supply push,'" he said.
Winter storm windfall
Some oil and gas companies benefited financially from the deep freeze that left millions of customers in Texas state without power for days. Energy Transfer LP said its gas storage business stood to profit from the supply constraints and related price hikes.
"In Texas alone our assets are doing exceptionally well," co-CEO Marshall McCrea said. "It's a tough time. We hate what's going ... in this state, but we're doing everything we possibly can to pull gas out of storage and deliver it to the power plants and to the LDCs."
"From a financial standpoint we're doing pretty well because of the nature of our assets, where they sit, and how we're able to perform in this type of situation," he said.