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Enbridge's Line 3 Gets Minnesota Supreme Court's Support

Zacks Equity Research

Enbridge Inc. ENB recently supported a ruling by the Minnesota Supreme Court, which rejected the company’s Line 3 Replacement Project challenges. Tribal and environmental groups had urged a Final Environmental Impact Statement, which was rejected by the court, enabling the midstream company to cross a hurdle.

The decision is expected to accelerate permitting processes on the project, which is already delayed. The Line 3, which will provide the upstream companies operating in Canada with more takeaway capacity, was earlier expected to come online by 2019-end. Following several permitting issues, the project is now expected to come into service in second-half 2020. The latest ruling is expected to help the company to make deals with labors, contractors, local communities and other related associations.

The pipeline project’s setback, which adds to the takeaway capacity constraint of Canada, has prompted the Canadian government to put a ceiling on production. This has reduced the differentials between Canadian crude prices and the WTI crude benchmark.

Project Importance

The Line 3 pipeline is part of Enbridge's pipeline network that ships around 3 million barrels of oil per day, on an average, from Canada across Northern Minnesota. A portion of this oil serves two refineries in Minnesota. The rest of the oil is transported to other refineries located in the Midwest and more places.

The pipeline needs frequent maintenance as it is around 50 years old. In order to increase the pipeline's safety and volume, Enbridge had proposed the plan of replacement. It believes that the approval of the replacement project will help the refineries in Minnesota and the regional oil market. Moreover, Enbridge believes that the jobs created through the project, following its completion, will be important for the state's economy.

Notably, the capital cost of the project in Canada is estimated to be around C$9 billion. The pipeline — having roughly 370,000 barrels of transportation capacity per day — will transport light, medium and heavy crude oil.

Price Performance

Calgary, Canada-based Enbridge has increased 13.4% year to date compared with 10.9% rally of the industry it belongs to.

Zacks Rank and Stocks to Consider

Currently, Enbridge carries a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are National Oilwell Varco, Inc. NOV, Dril-Quip, Inc. DRQ and NuStar Energy L.P. NS. All these firms have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

National Oilwell’s 2019 earnings per share are expected to rise 137.5% year over year.

Dril-Quip’s 2019 earnings per share are expected to rise 131.8% year over year.

NuStar Energy’s third-quarter 2019 earnings per share are expected to gain more than 108% year over year.

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