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Enbridge Energy (EEP) Puts Oil Pipeline Project on Hold

Zacks Equity Research

Enbridge Energy Partners, L.P. EEP has announced plans to put the construction of the Sandpiper crude oil pipeline on hold, until market conditions are conducive. Enbridge has a partnership with Marathon Petroleum Corporation MPC for the pipeline.

Details of the Announcement

Enbridge announced that it intends to withdraw pending regulatory applications with the Minnesota Public Utilities Commission for the $2.6 billion Sandpiper pipeline. The pipeline was supposed to transport crude oil from North Dakota to Wisconsin.

According to the company’s management, oil production in North Dakota will not reach levels high enough to support the pipeline’s capacity within the next five years. In fact, North Dakota crude production has plummeted to its lowest in the last two years due to the dramatic decline in crude prices following the global supply glut. This was the primary reason behind the company’s decision to defer construction of the project.

Sandpiper has been caught up in regulatory troubles due to environmental activists’ concerns that the pipeline could threaten ecologically sensitive areas, leading to the delay in its approval process.

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The Bakken Project

In August, Enbridge announced the creation of a joint venture, MarEn Bakken Company LLC, with Marathon Petroleum to acquire a 37% stake in the Bakken Pipeline System from Energy Transfer Partners, L.P. ETP and Sunoco Logistics Partners L.P.  SXL.The purchase agreement is worth $2 billion.

Enbridge is entitled to a 75% stake in the joint venture. The acquisition price of its effective 27.8% interest in the pipeline is $1.5 billion.

The Bakken Pipeline project, consisting of the Dakota Access Pipeline and the Energy Transfer Crude Oil Pipeline, would transport crude oil from North Dakota to Texas, via the Midwest.

Enbridge believes that this project will accelerate cash flow from its Bakken Assets.

Zacks Rank

Enbridge Energy carries a Zacks Rank #3 (Hold).

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