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Enbridge Offshore Pipelines
Enbridge Offshore Pipelines is comprised of 11 natural gas gathering and FERC-regulated transmission pipelines in five major corridors in the Gulf of Mexico, extending to deepwater frontiers. These pipelines include almost 1,500 miles (2,400 kilometres) of underwater pipe and onshore facilities and transported approximately 2.1 bcf/d during 2007.
Results of Operations
Offshore earnings for the year ended December 31, 2007 were $27.1 million compared with $18.1 million for the year ended December 31, 2006. In 2007, earnings included $11.3 million of insurance proceeds for both property insurance recoveries and business interruption resulting from the 2005 hurricanes. The final insurance claim settlement is expected in the first half of 2008. Offshore earnings also reflected the impact of a stronger Canadian dollar, continuing repair and inspection costs and expected continuing natural production declines on deliveries to the pipelines in 2007. Start up issues experienced by producers on key production platforms, resulting from the effects of the extreme 2005 hurricane season, delayed new sources of volumes during the year; however, volumes from the Atlantis platform started contributing to earnings at the end of 2007.
Earnings for the year ended December 31, 2006 in Enbridge Offshore Pipelines were $18.1 million compared with $11.8 million for the year ended December 31, 2005. In 2006, volumes increased, resulting in increased earnings compared with 2005 which reflected the impact of two severe hurricanes. The 2006 results were negatively impacted by the stronger Canadian dollar.
Transportation Contracts
The primary shippers on the Offshore systems are producers who execute life-of-lease commitments in connection with transmission and gathering service contracts. In exchange, Offshore provides firm capacity for the contract term at an agreed upon rate. The throughput volume generally reflects the lease's maximum sustainable production.
The transportation contracts allow the shippers to define a maximum daily quantity (MDQ), which corresponds with the expected production life. The contracts typically have minimum throughput volumes which are subject to take-or-pay criteria but also provide the shippers with flexibility given advance notice criteria to modify the projected MDQ schedule to match current deliverability expectations.
The long-term transport rates established in the gathering and transmission service agreements are generally market based but are established using a cost of service methodology, which includes operating cost, projected revenue generation directly tied to production deliverability and the appropriate cost of capital.