Enbridge Energy Partners (EEP) is a major MLP that delivers liquid petroleum and natural gas in the Mid-Continent and Gulf Coast regions of the US. A high percentage of company revenue comes from long-term, fee-based, low-risk agreements. The Natural Gas Segment is largely in north and eastern Texas and represents 1/3 of EEP business. However, the Liquids Segment, representing 2/3 of the business, is the most exciting because it has the world's longest liquid petroleum pipeline. EEP transports 60% of US bound oil, over 2 million barrels per day (BPD), from western Canada, the largest supplier of foreign oil. The next largest sources of foreign oil are Mexico and Saudi Arabia, each supplying 1.1 million BPD, and Nigeria supplies another 1 million BPD. Total imports are 9.4 million BPD. The Liquids Segment also transports crude oil and natural gas liquids to Ontario, Canada.
Enbridge Inc (ENB), a leading Canadian Energy company, is the general partner of EEP and owns about a quarter of EEP units, giving it a strong relationship with EEP. ENB operates the Canadian portion of the pipeline and EEP operates the US portion (orange lines in the graph below show EEP lines). The lines in Minnesota are thicker because pipeline capacity was doubled in a recent expansion. Pipelines are being expanded in North Dakota (in 2012 is expected to become the second largest state for oil production).
EEP is increasing its North Dakota Pipeline Capacity 120,000 bpd from 235,000 bpd and that should be in-service in early 2013. In addition the Bakken Berthold Rail Program will bring additional capacity of 80,000 bpd in service next year with access to mainline premium markets. Bakken formation crude supply is forecasted to at least double by 2020. In addition, EEP is one of the largest owner/operators at Cushing, a major oil US hub. A new pipeline to the Gulf coast was just approved to alleviate the glut in the oil hub of Cushing, Oklahoma, and should be operating in 2 years. This pipeline will substantially increase oil flow in EEP pipelines from Canada to Cushing.
Natural gas has also shown substantial growth. EEP has a large geographic footprint with 11,500 miles of gathering and transmission pipelines, 2.0 billion cubic feet (BCF)/day of active processing capacity and 1.2 bcf/day of treating capacity. EEP is competitively positioned for Granite Wash, Haynesville Shale and other emerging shales. Current natural gas volume is 70% above the 2005 level. In 2012, EEP is guiding a 20+% increase in its NGL volume. NGL supply from US gas production is forecasted to grow 50% by 2029.
Capital expenditures for 2012 are estimated to be $1.3 billion for Liquids Segment, $705 million for Natural Gas and $115 million for core maintenance. EEP has $2 billion of available liquidity and over the years has had several successful offerings selling new units to increase equity.
EEP has an attractive yield coupled with a favorable tax treatment resulting in a high tax deferral rate for investors with a yield of nearly 7% (among the highest for an MLP). The units and shares sell for around $32 with a distribution/stock dividend of $2.13. Annual distributions have increased since 1993 with no reductions and EEP has a target of 2-5% growth rate going forward. A second company, Enbridge Energy Management (EEQ), is a comparable corporation that manages the business. Each share is backed by one unit of the partnership. The distribution is used to calculate a comparable stock dividend (a non-taxable event). While not appropriate for investors who require income from investments, those who don't will appreciate the lack of tax hassle and these shares are welcome in retirement accounts.
Current yield and capital appreciation are the key ingredients for successful investments. EEP and EEQ give investors high current yield along with a track record of growth. A national priority for the US is to obtain more oil from domestic sources and friendly neighbors. Enbridge companies will benefit from this need.
Enbridge Energy Partners distributions
Disclosure: I am long EEQ.
Additional disclosure: Above ignores the symbol EEP which is if anything more important than eeq.