Enbridge formed Houston-based Midcoast Energy Partners in 2013, its primary vehicle for owning, operating—and growing—its natural gas and NGL midstream business in the U.S. Harper joined Midcoast and Enbridge early this year, following a distinguished executive career with several midstream firms. He visited with Midstream Business about the new organization and his new position with it.

MIDSTREAM: You have a new role with a new firm. How does this position you now hold build on your previous midstream expertise?

HARPER: I think as I look back at my earlier role at Spectra Energy Partners, getting it up and going as a new IPO and public entity, and then building what is now the CenterPoint Energy portion of the Enable Midstream business, my experience bodes pretty well for what we want to do here. We started from scratch then, or at least we had some meager starts, for what became some pretty big entities.

I believe my experience in being able to communicate with the markets, to understand what investors are looking for, makes my past very helpful. I think MLP investors and the businesses I like to run are very complementary—good, solid distribution support and then distribution growth. That’s what I’d love to do at Midcoast.

MIDSTREAM: What does Midcoast mean to Enbridge?

HARPER: The question is really: What does it mean for investors? Being split off from Enbridge Energy Partners gives the investment community two avenues to invest in—one for crude-specific pipelines and one for natural gas, natural gas liquids, pipelines and infrastructure. It offers the market the opportunity to invest differently. It gives us a currency to work with on the gas side alone, then to step out and do things that maybe Enbridge Energy Partners wouldn’t necessarily want to invest in.

MIDSTREAM: How does Midcoast fit into Enbridge’s business strategy for North America?

HARPER: Enbridge has a quite extensive capital program on the oil pipeline side of the business. Basically, if the gas business doesn’t grow, it’s going to be diluted in the Enbridge portfolio. When I first spoke with Al [Monaco, Enbridge’s president and CEO] about coming onboard, it was about growing the gas position so it wasn’t diluted. To me, that’s exciting.

There’s a lot of money that would need to be spent on the gas side to make it a meaningful part of Enbridge by 2020. To me, that’s fun, I like growing things. I like having the wherewithal to be able to do it, and Enbridge does have that.

Midcoast, as a component of that, is an important piece of the gas business for Enbridge. Obviously, we have critical mass in Texas, and we’d like to extend our reach outside of the current footprint. That means increasing our scale, too—getting bigger. So all in all, it all bodes very well for Enbridge as the eventual general partner.


Midcoast’s Henderson plant lies just outside its namesake town, Henderson, Texas. The cryogenic processing plant forms part of the partnership’s sprawling East Texas system serving Bossier and Haynesville producers. The system includes more than 3,900 miles of pipeline, 11 treating plants and a fractionator. Source: Midcoast Energy Partners

MIDSTREAM: Your assets are focused on Texas, but in multiple plays—how do those plays differ?

HARPER: We have three systems: East Texas, North Texas and Anadarko. North Texas is more of a dry gas system but may be getting wetter as producers drill in Jack County. But Anadarko and now East Texas are becoming richer gas plays for us. And in East Texas, the Eaglebine is a future play; right now the emphasis is on the Cotton Valley. We’re basically focused on the rich plays in the Anadarko and the East Texas now.

We also have the Texas Express Pipeline that we’re partners in that has some connectivity to each of these systems. It’s important having a pipeline to market and being able to integrate that asset through our ownership interests as well as our participation and capacity.

MIDSTREAM: What do you see as your growth potential? Where do you want to grow?

HARPER: Our current footprint includes the Anadarko area and the Cline Basin. Getting bigger in Texas and Oklahoma, where our assets are, would be nice. In East Texas, I think we’ll be very competitive in the Eaglebine. We may not be a first mover there—but we will be certainly one of the first in that area.

There’s lots of room for growth. I want to point to my days working with INGAA [Interstate Natural Gas Association of America] and its study in 2011, which was reaffirmed recently in an update, about the amount of capital that’s going to be required in the midstream—$30 billion a year for the next 15 years or so. That is substantial. There are going to be lots of opportunities out there, it’s just a matter of where we want to play.

MIDSTREAM: As a new midstream player, what are your strengths?

HARPER: One thing Midcoast has is scope. What I mean is, we have gathering, processing, treating, marketing and logistics. So we touch all aspects of the value chain, we bring that to the table for customers. That means, also, when we look at and evaluate deals, we can evaluate them on a full value chain basis in order to capture acquisition opportunities.

Obviously we have two strong parents, or a parent—Enbridge Energy Partners LP—and a grandparent—Enbridge Inc. They are going to be very supportive sponsors.

MIDSTREAM: You announced a goal to complete your first dropdown in the middle part of this year. What is the status of that transaction?

HARPER: We announced it in June and closed in July. I feel good about the timing. It’s not that complicated of a transaction since we just went public last year.

MIDSTREAM: How would you define financial success?

HARPER: I would define financial success for 2014 as delivering on our [Securities and Exchange Commission] Form S-1 distributable cash flow target [$69.2 million for the 12 months ending Sept. 30]. I think that it is very, very important to deliver on what we are committed to.

We didn’t really come out of the gate very well in the first quarter, though. [Net income was 1 cent per partner unit.] I have used a metaphor recently in my discussions about the 2002 Kentucky Derby. The jockey, Victor Espinoza, was introduced to his horse, War Emblem, that morning. That afternoon he got on the horse, he got his instructions from the trainer, Bob Baffert, and proceeded to get loaded into the gates. The gates opened—and the horse stumbled, he went to his knees. But the horse got back up and won the Derby that day, and he also won the Preakness that year.

So we may have stumbled out of the gate, but we’ve got a new jockey on, and we’re looking to improve our performance through the year.

This MLP is a long-term investment, so we’re going to be in lots of Kentucky Derbies and Preaknesses down the road, and we are barely around the first turn in our first race. Don’t count us out based on one quarter from a financial result perspective.

MIDSTREAM: There are a lot of MLPs in the midstream. What makes Midcoast stand out to potential investors?

HARPER: Our story is we’re going to deliver double-digit distribution growth. Part of that story, especially at IPO, is it’s going to be driven by early internal growth and by the drop-down potential of the balance of the interest in our operations.

That’s a good story—just to deliver double-digit returns—but we want to do even better so we need to grow, and I have a track record of growing businesses. We’re going to offer investors a very good bargain right now at the entry point, and they can grow with us. They’re going to see a nice return on that capital.

MIDSTREAM: What strategy offers the greatest growth potential for Midcoast?

HARPER: I think for big growth it has to be external, getting out of our footprint. Internal growth will be from getting our assets to operate, to deliver and to perform as they should. There is upside within the existing footprint so that will be a focus. But I think to grow the way I want to and what we need to deliver, it can’t just be organic; it has to be step-out growth and acquisitions.

MIDSTREAM: There seems to be a growing use of multimodal transportation to move product to market. What’s changing the midstream transportation mix from your perspective?

HARPER: Well, rail is very interesting right now. It had its day a long time ago, and now it’s back.

MIDSTREAM: Do you think rail will remain strong?

HARPER: It depends on where government regulations go. There’s a lot of uncertainty about the rail cars and what’s going to be required for them, especially on the crude side. I think on the natural gas liquid side we understand the rules of the road, so rail will continue to be competitive in that market for shipping vs. pipes. We have assets in that area with the marketing logistics business we run, so it provides nice optionality for us.

MIDSTREAM: Overall in the big picture, what trends do you see in the midstream in the next few years?

HARPER: I’ll reference those INGAA Foundation studies again. A considerable amount of infrastructure will be required. New plays will continue to be developed in areas that will need more infrastructure or retrofitted infrastructure. So I think the next several years will be more of the same as the past several years.

There will be some big pipes built. There are projects going to Florida, big pipes coming out of the Marcellus probably. I think a considerable amount of investment and following on natural gas and NGL infrastructure, as well as crude oil gathering, will become a bigger play for midstreamers.

Paul Hart can be reached at pdhart@hartenergy.com or 713-260-6427.

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