United Refining, Enbridge strike cost-sharing deal for US crude pipeline

United Refining Company (URC) has entered into an agreement concerning Line 10, a pipeline owned by Enbridge, which transports crude oil from Canada to URC’s Kiantone Pipeline in West Seneca, New York and serves its refinery in Warren, Pennsylvania.

“We are very pleased that our companies have agreed to a plan that would allow Enbridge to continue to provide operational reliability and efficiency to Line 10," said John A. Catsimatidis, CEO of URC. "The agreement will allow us to consider the feasibility of expansion of the pipeline’s capacity over the coming years subject to regulatory approvals. 

"The agreement underscores our commitment to safe, reliable, low cost transportation of our crude oil feed stocks for decades to come," he added. "After completion of the segment replacement program, it is our expectation that Line 10 will be restored to its original operating capacity.”

The deal provides for URC to fund certain integrity costs necessary to maintain Enbridge’s Line 10 pipeline and also a commitment to pay for half of the cost of the replacement of 20 miles of pipeline in Canada. URC’s share of the replacement cost of this section of the pipeline will be approximately $28 million.

It also provides for the replacement and upgrade of additional portions of Line 10, subject to regulatory approvals, and provided that a “put and call” agreement concerning ownership of the pipeline is entered into by the end of the year.

If the parties enter into the “put and call” agreement, URC and Enbridge would share the cost of replacing the majority of Line 10 in Canada and part of it in New York State. Each party would invest approximately $135 million over the next five or six years for pipe replacement.

URC will repay Enbridge for its investment over a ten year period for each section of Line 10 that is replaced. URC would have the right to purchase (call) the entire Line 10 from Enbridge at any time during the next 11 years and Enbridge will also have the right to require URC to purchase Line 10 (put) over a two-year period starting at the later of nine years or when all of the upgrades are completed.

The agreement states that URC will pay Enbridge the published toll for the transportation of hydrocarbons and backstop the capital and integrity costs while Line 10 is owned by Enbridge. Promptly after execution of the agreement, URC will pay Enbridge $36 million for integrity costs for 2014. 

Construction of the first segment of the pipeline to be replaced is planned to begin in 2015.