Enbridge Expands Pipelines but Cash Distribution Lags

Feb.16.10 | About: Enbridge Energy (EEP)

While a significant drilling activity is expected to come online, Enbridge Energy Partners LP (NYSE:EEP) is planning to expand its East Texas Gas Gathering System. The partnership will construct three new lateral pipelines linking with the Haynesville Shale play. In addition, it is also planning to build a large diameter lateral from Shelby County to Carthage, Texas.

Total project cost is approximately $141.8 million, which includes approximately 50 miles of 16-inch to 24-inch diameter pipe as well as an additional 38-mile, 24-inch lateral pipeline. These expansions will increase the partnership's takeaway capacity to 900 million cubic feet per day (MMcf/d).

The partnership’s Natural Gas Transportation segment primarily consists of the East Texas System, the Northeast Texas System and the Anadarko System. The expansion of East Texas System will be followed by more transportation and acreage commitments from producers received by the partnership.

The partnership has been active with its five-year organic growth projects, which are largely completed. The expansion and diversification of its asset base has created opportunities for internal growth projects. Current expansion initiatives boost the partnership’s fee-based businesses.

Though Enbridge’s organic growth program is quite impressive, its cash distribution growth profile does not compare favorably with the other players in the MLP space. While many peers are raising cash distributions in the recent times with improving industry fundamentals, Enbridge is lagging behind in this metric. We are currently Neutral on EEP units.