Enbridge Energy Partners Agrees on Asset Drop-Down Terms - Analyst Blog

Enbridge Energy Partners, L.P. (EEP) has entered into an agreement to acquire the remaining 66.7% interest in the U.S. segment of the Alberta Clipper Pipeline from its parent company Enbridge Inc. (ENB) through a drop-down transaction. The assets are currently owned by Enbridge Inc.'s U.S. affiliate Enbridge Energy Company, Inc. The estimated cost of the deal is $1 billion. The transaction is expected to complete on Jan 2, 2015.

Enbridge Energy Partners has crude oil and liquids transportation and storage assets, natural gas gathering, treating, processing and transmission systems and marketing assets in the U.S.

The transaction will be financed though the issuance of new units worth around $0.69 billion by Enbridge Energy Partners for Enbridge Energy Company and the payment of nearly $0.31 billion of debts owed to the latter.

The asset drop-down was initially announced in Sep 2014 and the transaction was then valued at around $0.9 billion.

The 36-inch diameter, 325-mile long U.S. segment of the Alberta Clipper Pipeline stretches from the U.S. border near Neche, ND to Superior, WI. The pipeline has an initial capacity of transporting 450,000 barrels per day (bpd) of crude oil, which could increase to 800,000 bpd by adding pumping horsepower.

The drop-down transaction will be accretive to the partnership immediately upon closure adding to its distributed cash flow per unit.

According to a U.S. Energy Information Administration report, published in Dec 2014, proved reserves for crude oil and lease condensate in North Dakota at the end of Dec 2013 were 5,683 million barrels compared with 3,773 million barrels a year ago. The state of North Dakota saw the largest increase in proved reserves in 2013 due to the shale boom in the Williston Basin.

Going forward, demand for midstream services will concomitantly rise as exploration and production firms deploy more resources to unlock reserves. Enbridge Energy Partners' cash inflow will benefit from higher demand for transportation services.

Enbridge Energy Partners currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Spectra Energy Partners, LP (SEP) and Atlas Pipeline Partners, L.P. (APL). Spectra Energy sports a Zacks Rank #1 (Strong Buy) while Atlas Pipeline holds a Zacks Rank #2 (Buy).

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