Enbridge Energy Partners L.P. (EEP) announced that an agreement has been reached on the terms of the drop down to the of the remaining 66.7% interest in the U.S. segment of the Alberta Clipper Pipeline from its general partner Enbridge Inc. (ENB). The drop down is expected to close on Jan 2, 2015, for aggregate consideration of $1 billion. The consideration will consist of approximately $694 million of a new class of limited partner interests and the repayment of approximately $306 million of internal debt.
In conjunction with the approval of this transaction, the board of directors has authorized an increase in the cash distribution payable on Feb 13, 2015 from 55.5 cents per quarter to 57 cents per quarter, an increase of 1.5 cents per unit per quarter. On an annualized basis this raises the partnership's cash distribution to $2.28 per unit.
Enbridge Energy Partners is a master limited partnership, engaged in the gathering, processing and transmission of natural gas and crude oil. The partnership is best known for its ownership of the Lakehead System, one of the world’s longest petroleum pipeline systems that transfers over 60% of the Canadian oil output to the U.S. This unique position helps the partnership to capitalize on the growing Canadian oil sands production.
A focus on fee-based and diversified businesses has enabled Enbridge Energy Partners to dilute its business risks, as well as steadily enhance its earnings profile. We remain positive on Enbridge given its wider exposure to the Bakken Shale, the Haynesville Shale and Granite Wash.
The partnership has a number of natural gas liquids (NGLs) and crude oil focused organic growth projects lined up for the next two years. The projects are backed by a sharp rise in liquids drilling from prolific shale plays in the U.S., including the Bakken Expansion, Border to Flanagan Expansion, Cushing Terminal Expansion and the Texas Express NGL pipeline.
Enbridge’s Liquids segment is also poised to benefit from the current economics of producing oil, increased output from the Bakken Shale and Canadian Oil Sands regions as well as higher revenues from Alberta Clipper. In Liquids, the emphasis will likely be on rising crude takeaway capacity in the Bakken and intensifying capacity to ship crude eastward to the upper Midwest and Canada refineries. Enbridge is also assessing other expansion projects including Alberta Clipper and Southern Access crude pipeline expansion.
However, Enbridge’s midstream natural gas business is sensitive to changes in natural gas supply, demand fundamentals and commodity cycles associated with gas processing margins. Furthermore, through the expansion of its natural gas gathering and processing business, Enbridge has increased its risk exposure to commodity prices.
Enbridge currently carries a Zacks Rank #3 (Hold). Investors interested in the oil and gas sector could consider better-ranked stocks like Spectra Energy Partners, LP (SEP), Seadrill Partners LLC (SDLP) and Sandridge Mississippian Trust II (SDR). All of these carry a Zacks Rank #1 (Strong Buy).
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