Enbridge Energy Partners (NYSE: EEP) is a Canadian midstream company based in Calgary, Canada. The company focuses primarily on the generation of energy along with its transportation through North America. As a result of the company's assets, the company is one of the larger midstream companies in the world with a market cap of just under $10 billion compared to just under $50 billion for the largest midstream company, Kinder Morgan (NYSE: KMI).
Enbridge Energy Parnters Pipeline - Enbridge Energy PartnersClick to enlarge
Like all other midstream companies, Enbridge Energy Partners has had a difficult time recently. The company watched its stock price increase from $30 in mid-2014 up to a high of just over $40 per share in late-2014. Despite the difficult oil environment, investors at the start of the crash were reluctant to give up the lovely yield from the shares of midstream oil companies.
However, as the oil crash become drawn out, Enbridge Energy Partners shares began to take a hit. The company saw its shares drop down to a low of just over $15 per share in early-2016. Since then, the company's shares have recovered by 60% to roughly $24 per share. However, despite this rapid improvement, Enbridge Energy Partners continues to offer a yield of just under 10% with strong room for improvement. In the current low interest rate environment, Enbridge Energy Partners will continue to offer a strong yield to investors.
Now that we have an overview of Enbridge Energy Partners along with its recent price actions, it is now time to discuss Enbridge Energy Partners overall as an investment.
Enbridge Energy Partners is a large cap MLP with an enterprise value of $20 billion. The company has an investment grade credit rating from all three major credit ratings and is a utility-like MLP based on its defensive cash flow profile. However, despite this utility-like nature, Enbridge Energy Partners has continued to experience strong growth averaging a very impressive CAGR of 11.4% annually over the past 25 years.
As a result, the company has growth to the point where its present total assets are $18.8 billion. The company has 6100 miles of liquid pipelines with the storage capacity for 20 million barrels of crude. In an environment where an oversupply of oil production means that the prices of storage are going up, 20 million barrels of crude storage is a valuable asset.
Enbridge Energy Partners Position - Enbridge Energy Partners Investor Presentation
The above image shows how well-positioned Enbridge Energy Partners is for the current environment. Less than 5% of the business's cash flows are subject to direct commodity exposure with the vast majority of the company's revenues coming from investment grade customers. However, the company isn't highlighting all of its negatives.
Despite the vast majority of its revenue being from investment grade clients, should the oil crash be drawn on, some of these clients might go bankrupt. And these clients going bankrupt would negatively impact Enbridge Energy Partners significantly. Just a few clients going bankrupt could easily result in the company losing 10% or more of its revenue. Such a loss could mean that the company would be forced to cut its dividend.
Now that we have a deep overview of Enbridge Energy Partners, it is now time to discuss the company's growth strategy.
Enbridge Energy Partners Growth Strategy - Enbridge Energy Partners Investor Presentation
Enbridge Energy Partners is sponsored by Enbridge (NYSE: ENB). The company has a market cap of just a hair under $40 billion and is currently in the middle of an immense $26 billion organic growth program. That growth program includes more than $10 billion of liquid pipeline assets available to be dropped down. It is important to keep in mind that such a large drop down, while likely requiring the company to issue equity or debt, would increase the company's assets by more than 50%.
Enbridge Energy Partners Markets Served - Enbridge Energy Partners Investor Presentation
More importantly, Enbridge Energy Partners has significant room for growth in markets that it doesn't currently dominate. Enbridge currently dominates most of the northern markets with shares of 80% or more in several markets. However, as we move south, we see that Enbridge's market dominance decreases significantly with the company having no presence in the Eastern Padd III market. The company expanding into these markets could significantly increase the available market and earnings for Enbridge Energy Partners.
Now that we have an overview of Enbridge Energy Partners' investment overview and growth strategy, it is now time to discuss the company's financial outlook.
Enbridge Energy Partners Financial Outlook - Enbridge Energy Partners Investor Presentation
The above image shows Enbridge Energy Partners funding outlook. The company has significantly reduced its 2016 capital expenditures to $885 million in anticipation of a more difficult oil market. Based on the company's recent equity crash, the company does not expect to access the equity markets in 2016, which is important, as it tells investors that they can expect the company to provide them with a secure dividend without dilution fears. More importantly, the company has opened up a new $750 million credit facility with its sponsor Enbridge.
The company has attempted to save money by moving to a new system of undertaking projects. The company is jointly funding projects with its sponsor (Enbridge) which both guarantees long-term funding contracts and helps decrease the startup capital requirements the company has. That means the company will be able to maintain an investment grade credit rating keeping interest rates on its dividends down.
Enbridge Energy Partners Shale Assets - Enbridge Energy Partners Investor Presentation
One of Enbridge Energy Partners major sources for growth is the company's expansion into major shale plays in Texas and Oklahoma. One of the major reasons for the major crash in natural gas prices is new shale oil formations that pump out natural gas almost as a byproduct. This byproduct pump out of natural gas meant shale producers sold it at whatever price they could get significantly driving out natural gas prices.
However, selling all this natural gas, especially from shale wells that don't last more than a year or so, means that consistent new natural gas pipelines need to be built. These new natural gas pipelines, some run by Enbridge Energy Partners, give the company a large source for additional growth that can help its revenue to grow.
That means Enbridge Energy Partners has a strong financial outlook along with enormous growth sources.
Enbridge Energy Partners has seen its stock price have a difficult time since the start of 2015. The company watched its stock price drop by more than 60% from the start of 2015 down to its January 2016 low of just $15 per share. However, since then the company has recovered by 60%. Despite this, the company continues to offer investors a very respectable dividend rate of almost 10%.
Despite these difficulties, Enbridge Energy Partners has immense potential. The company's sponsor Enbridge is undertaking an immense $26 billion growth program and the company has a number of attractive growth opportunities, especially from shale formations in Texas and Oklahoma. These new opportunities both from shale in the south and from dropdowns from the company's sponsors point towards some immense growth opportunities.
These growth opportunities covered with the company's 10% yield means that the company is a strong investment at the present time.
Disclosure: I am/we are long EEP, KMI.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.