Enbridge Inc. is contemplating its next steps after a Minnesota court ruling placed its almost-completed Line 3 replacement project in regulatory limbo.

The Calgary, Alberta-based pipeline giant said it is conducting a "detailed analysis" of the Minnesota Court of Appeals' decision that found that an environmental study that supports the regulatory permits to build the C$9 billion line was inadequate. Enbridge noted that of the nine disputed elements of the Minnesota Public Utilities Commission's approval of the pipeline through the state, eight were dismissed. The court found that the final environmental impact statement did not properly consider impacts on the Lake Superior watershed.

"We are disappointed with the court's decision given that the Minnesota Public Utilities Commission unanimously found the Line 3 Replacement Project's 13,500-page FEIS adequate, based on the most extensive environmental study of a pipeline project in state history," the company said in a statement on its website. "We are in the process of a detailed analysis of the court's decision and will consult with the MPUC and other state agencies about next steps."

The cost of the U.S. portion of the Line 3 replacement, which includes short segments in North Dakota and Wisconsin, is estimated at US$2.9 billion. It was expected to be completed by the end of 2019 after the PUC approved it. However, state licensing agencies said they would not issue permits until November, which pushed the in-service date back by a year. Minnesota Gov. Tim Walz, who is opposed to the project, ordered other state agencies to appeal the approval of the line. The delays will likely increase in the wake of the decision and could dent Enbridge's earnings, analysts said.

"The key question for us is whether permitting-related activities will be allowed to progress concurrently with the additional EIS work required," analysts at Tudor Pickering Holt & Co. said in a June 4 note. "Given the governor's stance and further deliberation required by the MPUC, it's quite possible permitting activities are halted until the EIS is deemed adequate, causing uncertainty around the ... timeline."

The analysts said they anticipate a delay of at least three to six months and the possibility of more permitting delays, which "may result in Street estimates needing to come down in 2020 by [about 14 Canadian cents per share] to move in-service completely into 2021, matching our estimates." Enbridge stock slipped 4.93% to US$35.23 in New York on June 3 in the wake of the ruling. It recovered slightly to US$35.65 in afternoon trading June 4.

Minnesota has been a major sticking point for Enbridge's expansion plans to move bottlenecked Canadian production to U.S. refiners. The Line 3 project in Canada, which was substantially completed in May, has been halted at the U.S. border amid resistance from the state, leaving about 360,000 barrels per day of added capacity idle. The company said it would not start the completed Canadian segment of the line. The incomplete portion of the line would run across about 13 miles in North Dakota and 337 miles of Minnesota. A 14-mile segment in Wisconsin was completed in 2018.

Enbridge also planned to build the Sandpiper pipeline that would traverse Minnesota to deliver oil from the Bakken Shale in North Dakota to its Superior, Wis., hub. It abandoned that project in 2016 in favor of buying a stake in the Dakota Access pipeline, where construction sparked massive protests against the project.

Line 3 makes up part of Enbridge's mainline system, a network of pipes that mostly run in a common right of way with a capacity of about 3 million bbl/d. That right of way was originally established through land-use agreements reached prior to the construction of the company's original line in the early 1950s. The new line would run outside of the mainline right of way through Minnesota because the existing line continues to operate. The route avoids Native American lands in the state because of opposition by residents. Enbridge voluntarily cut shipments along Line 3 to 50% of capacity after an examination of the 1960s-vintage conduit that came in the wake of a 2010 rupture on one of its Michigan lines.