Train proponents are quick to point out that even though trains leak more often than pipelines, pipelines spill on average three times more oil than trains for the same distance. In 2010, Enbridge Inc (USA) (NYSE:ENB) was a prime example. It caused a huge heavy oil spill of more than 1 million gallons. This spill is not completely surprising, as the pipeline section had a history of corrosion problems that federal agencies did not require Enbridge Inc (USA) (NYSE:ENB) to repair.
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The Call for More Regulation
If regulatory agencies had required Enbridge Inc (USA) (NYSE:ENB) to repair more of the issues it found with its pipeline, then there is a lower possibility that the spill would have occurred. There were multiple warning signs that Enbridge Inc (USA) (NYSE:ENB) choose not to listen to.
Another critical part of preventing and decreasing spill volume is better monitoring. Unmanned Aerial Vehicles (UAVs) are slowly being commercialized. They can easily be outfitted with inferred cameras and remotely piloted to visually inspect potential spill sites. This would allow companies to detect spills without spending the time or money to dispatch human inspectors. If the federal government were to require the use of UAVs for pipeline inspection, pipelines would become an even safer form of transport.
The Benefits for the Bottom-Line
Pipeline operators stand to benefit from greater pipeline regulation. Increased regulation will increase maintenance costs, but the improved safety record would make it easier to get new projects built. TransCanada Corporation (USA) (NYSE:TRP) is fighting tooth and nail to get the Keystone XL pipeline approved, and it continues to be difficult battle. Enbridge Inc (USA) (NYSE:ENB) is in a similar situation with its Northern Gateway Pipeline. Local aboriginal and environmental groups are worried about the effect of potential spills and continue to fight the project.
The benefits are not limited to midstream players. Upstream companies like Total SA (ADR) (NYSE:TOT) have significant investments in fields that are far away from refineries or ports. In the Canadian oil sands, Total SA (ADR) (NYSE:TOT) holds a 40.8% in the Fort Hills asset, 50% interest in the Northern Lights asset and a 50% interest in the Surmont Asset. Eventually these reserves and producing assets need to be transported to market, and pipelines offer a very cost effective method.
Conclusion
TransCanada Corporation (USA) (NYSE:TRP) is an attractive company with the capital and profits to fund new pipelines, if they are approved. Its total debt to equity ratio of 1.32 is far more reasonable than Enbridge’s total debt to equity ratio of 3.25. TransCanada Corporation (USA) (NYSE:TRP) is profitable with an earnings before interest and taxes (EBIT) margin of 35.1% and a profit margin of 18.2%. Enbridge Inc (USA) (NYSE:ENB) offers a much thinner EBIT margin of 6.8% and a profit margin of 2.9%.
Total SA (ADR) (NYSE:TOT) is another good company to look at. While its EBIT margin of 10.6% and profit margin 4.4% could be stronger, its total debt to equity ratio of 0.46 is healthy for a major oil company. As the market waits for the final say on Keystone XL and the push for tighter regulation, TransCanada Corporation (USA) (NYSE:TRP) and Total are two good companies to look at.
The article To Be Profitable, We Need More Regulation originally appeared on Fool.com and is written by Joshua Bondy.
Joshua Bondy has no position in any stocks mentioned. The Motley Fool recommends Total SA. (ADR). Joshua is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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