Enbridge Energy Partners (EEP and EEQ) is one of the largest MLPs. Its general partner (manager) is Enbridge Inc (NYSE:ENB), the largest energy company in Canada. The two major businesses are (1) moving liquids (crude oil) from Canada to the US and eastern Canada and (2) natural gas systems with 12,000 miles of pipelines based in Texas. Canada is the largest source of imported oil for the US. EEP transports almost 70% of the crude oil from Western Canada and accounts for approximately 11% pf US oil imports. The liquids division had a major expansion, Alberta Clipper pipeline, opened in April 2010. EEP is also expanding oil pipelines from new oil fields in the upper Midwest.
EEP has been cautious about raising the distribution. The quarterly distribution was flat for 6 quarters at 95¢ until Q1 2010. In Q2 it was increased to $1.003 ($4.01 annual rate) and increased again in Q3 to $1.028 ($4.11 annual rate). This MLP is unusual because it has a second class of securities. Besides the partnership units (NYSE:EEP), Enbridge Management (NYSE:EEQ) is a corporation that helps finance Enbridge Partnership. Each share is backed by one unit of the partnership and pays a stock dividend based on the distribution paid to unit holders. Stock dividends are not taxed and EEQ shares are eligible for retirement accounts.
In the last two months, two oil spills of EEP have been in the news. The first was in late July when a pipeline had a major leak spilling oil into the Kalamazoo River and on to Lake Michigan. EEP has cleaned up the oil and been open about its work. Last week, there was another leak, near Romeoville, Illinois. An estimated 6,100 barrels of crude oil were released before the pipeline could be shut down. The line, carrying 670K barrels of oil daily, will be closed until the problem is identified and corrected. EEP is repairing the ruptured pipeline and has submitted a restart plan aimed at resuming crude oil flows by the end of the week. Implications of less oil available in the Midwest contributed to the recent rise in oil prices in the futures market.
After the first oil spill, EEP sold off from 60 to 51 and then recovered to the mid 50s. Following the spill last week the units fell 3 from the mid 50s, raising the yield to 7.8% (versus 6.7% for the Alerian MLP Index). Believers will view pull backs in price as buying opportunities. The Alberta Clipper project increases the liquids business and assuming the clean up in Illinois is completed quickly, EEP should do well. However, higher yields are associated with higher levels of risk. These oil spills are reminders that EEP (as well as all MLPs) are energy companies subject to outside forces which can do severe damage. MLPs carry an added risk that should be considered when determining unit evaluations.
Disclosure: No positions