NextEra Energy Partners NEP announced that it has entered into a definite agreement to acquire Meade Pipeline Co. LLC for $1.37 billion. This acquisition is going to be financed through a combination of committed project finance debt, new convertible equity portfolio financing and existing holding company debt capacity.
Through this acquisition, NextEra Energy Partners will own a 39.2% interest in the Central Penn Line, a 185-mile intrastate natural gas pipeline. This pipeline provides the Marcellus natural gas producing region an access to large demand centers in U.S. mid-Atlantic and Southeastern regions.
Benefits From Acquisitions
The acquisition of Meade Pipeline will allow the partnership to reap benefits from rising demand for the transportation of natural gas. Central Penn Line, which is backed by a minimum 14-year contract with a customer, has the capacity of transporting and delivering up to approximately 1.7 billion cubic feet (Bcf) of natural gas per day. This will definitely prove to be accretive to the firm’s earnings over the long term.
This pipeline is operated by Transcontinental Gas Pipe Line Company, or Transco. Under the agreement, NextEra Energy Partners will receive fixed annual payment from Transco. Given the increasing demand, the capacity of this pipeline could further increase by 0.6 Bcf per day through the addition of compression at new and existing stations. NextEra Energy Partners will own 40% of the expanded capacity through the acquisition of Meade Pipeline.
The acquisition is expected to annually contribute in the range of $90-$100 million initially to adjusted EBITDA and $105-$115 million following completion of the expansion project. Revenues generated from the acquisition will allow the partnership to provide increased distribution to its unitholders.
Rising Hydrocarbon Production
The U.S Energy Information Administration forecasts that U.S. natural gas production capacity will touch 91.4 billion cubic feet per day (Bcf/d) in 2019, indicating a 9.6% improvement from 2018 levels. Moreover, 2020 production is expected to improve nearly 2% year over year to 93.2 Bcf/d.
Currently, NextEra Energy Partners controls seven natural gas pipelines that have a combined capacity of 4 Bcf/d, out of which 3 Bcf is contracted capacity. The partnership’s pipeline assets are strategically placed to reap the benefits of rising natural gas production.
Given the rising oil and natural gas production, midstream operators are expanding operations and developing new pipelines to cater to the rising demand for transporting hydrocarbons from the production regions to end users. Notably, Plains All American Pipeline, L.P. PAA announced that it will jointly expand the existing capacity of the Saddlehorn Pipeline. The pipeline is jointly owned by Plains All American, Magellan Midstream Partners, L.P. MMP and Western Midstream Partners, LP WES. Post a successful open season in July, it was decided that the Saddlehorn pipeline’s capacity will be expanded by 100,000 barrels per day (bpd) to 290,000 bpd.
Zacks Rank & Price Performance
NextEra Energy Partners currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Units of NextEra Energy Partners have outperformed the industry in the past 12 months.
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