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Energy Transfer's Dakota Pipeline Hits Another Legal Snag

Zacks Equity Research

Disregarding the censure from environmental groups and the Standing Rock Sioux Tribe, Texas-based pipeline operator Energy Transfer Partners L.P.’s ETP $3.8 billion project – Dakota Access Pipeline – became operational on Jun 1 under an executive order of President Trump. 

However, a recent ruling by a federal court has turned in favor of the Sioux tribe and is likely to lead to temporary shutdown of operations. Post the verdict, units of Energy Transfer fell 3.8%, to close at $19.76 on Jun 14. Notably, this is the first time when the units of the partnership went below $20. The units further declined over the next two trading days to close at $19.19 on Jun 16.

The verdict is a landmark victory for the Sioux tribe, which filed the suit against the U.S. Army Corps of Engineers, believing that Energy Transfer did not complete a full environmental review and President Trump ignored their treaty rights. The Sioux tribe had objected the project as they were of the view that the pipeline would desecrate their sacred burial ground as well as contaminate the water supply, leading to public health hazards. For Energy Transfers, the judgment has added to the long list of legal challenges and criticism the pipeline has been grappling with. Both the parties are to appear in court on Jun 21 for further hearing.

On Jun 14, federal judge James Boasberg ordered the U.S. Army Corps of Engineers to reassess the environmental review and permits related to the Dakota Access Pipeline. According to the judge, the U.S. Army Corps of Engineers failed to comply with some of the requirements of the National Environmental Policy Act. The agency did not consider issues such as impact of oil spills on Sioux tribe’s fishing and hunting rights or environmental justice and whether the tribe will be disproportionately impacted by the spills.

The large scale pipeline project – which has been considered as the game changer for North Dakota Oil – is thus now required to undergo extensive environment and legal analysis. The Army Corps of Engineers have been asked to consider alternate routes which would not threaten the tribe’s water supply. They should also ensure that the project complies with all the regulations of the National environment Policy Act in order to remain fully functional without further legal hurdles.

Energy Transfer partner has however downplayed the ruling by issuing a statement – “Dakota Access believes the record supports the fact that the Corps properly evaluated both issues, and that the record will enable the Corps to substantiate and reaffirm its prior determinations.”

Zacks Rank & Key Picks

Energy Transfer is a master limited partnership, headquartered in Dallas. The partnership is engaged in the intrastate transportation and storage business of natural gas in the U.S. Energy Transfer Equity, L.P. ETE, is the partnership’s general partner and a 100% incentive distribution right in the partnership.

Energy Transfer Partners LP Price


Energy Transfer Partners LP Price | Energy Transfer Partners LP Quote

The partnership, under Zacks categorized Oil and Gas Production Pipeline-MLP, carries a Zacks Rank #3 (Hold).

Better-ranked players in the same industry include Enbridge Energy, L.P. EEP and Delek Logistics Partners, L.P. DKL. While Enbridge Energy sports a Zacks Rank #1 (Strong Buy), Delek Logistics carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank  stocks here.

Enbridge Energy reported a positive average earnings surprise of 38.22% in the trailing four quarters.

Delek Logistics is expected to deliver year over year growth of 59.40% and 18.84% in its revenues and sales respectively in 2017.

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