Enbridge to Enter into JV Connecting Permian Basin Natural Gas Supply to Growing LNG and USGC Demand
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Insights
The formation of a joint venture between Enbridge, WhiteWater/I Squared Capital and MPLX to develop natural gas pipeline and storage assets is a strategic move that strengthens Enbridge's position in the energy infrastructure market. The investment in the Permian Basin, a prolific natural gas-producing region, aligns with the growing demand for LNG, particularly as the U.S. continues to increase its role as a global energy supplier. The JV's focus on long-term, take-or-pay contracts with mostly investment-grade counterparties minimizes cash flow volatility and provides financial stability.
From a market perspective, this joint venture is likely to be viewed favorably by investors due to the accretive nature of the deal to Enbridge's distributable cash flow (DCF) per share, a key metric for energy infrastructure companies. The deal's structure, which includes Enbridge's contribution of the Rio Bravo pipeline project and capital, is designed to optimize the company's balance sheet by increasing EBITDA and reducing capital expenditure obligations proportionately. This could lead to a positive re-rating of Enbridge's stock as it demonstrates prudent capital management and growth potential.
The joint venture's asset base, including the Whistler pipeline, Rio Bravo pipeline project, ADCC pipeline and Waha Gas Storage, represents a substantial capital investment with a projected immediate return in the form of recurring cash flows. Given that approximately 98% of the joint venture's capacity is under long-term contracts with an average duration of over 10 years, this deal provides Enbridge with a predictable revenue stream. This is particularly significant as the energy market can be susceptible to price fluctuations; long-term contracts offer a hedge against market volatility.
Additionally, the embedded organic expansion opportunities, such as the expandable ADCC pipeline, present further upside potential. The ability to transport increased volumes to meet rising LNG demand could lead to additional revenue streams without proportionate increases in capital expenditures. This scalability is an attractive feature for investors, as it suggests a lower risk profile for future growth.
The strategic equity interest acquired by Enbridge in the joint venture may serve as a catalyst for future growth, as it provides the company with a more diversified offtake and access to key LNG export markets. The direct connection of the joint venture's infrastructure to Enbridge's existing assets at Agua Dulce enhances the 'super-system' approach touted by Enbridge's executive team, potentially leading to operational synergies and cost efficiencies. Such integration can enhance competitive advantage and improve market positioning relative to peers.
In the longer term, the joint venture's ability to connect sustainable natural gas production to export markets is aligned with the broader industry trend towards cleaner energy sources. This could enhance Enbridge's reputation as a forward-thinking player in the transition to a lower-carbon economy, potentially attracting ESG-conscious investors.
- Acquiring a meaningful, strategic equity interest in the joint venture
- Immediately accretive to DCF per share, with ~
90% contracted cash flows - Receiving immediate, recurring, and growing cash flow from operating assets with minimal commodity exposure
- Optimizes balance sheet by increasing EBITDA and reducing Enbridge's share of future
Rio Bravo pipeline project capex proportional to its economic interest in that project - Embedded organic expansion opportunities provides attractive growth options and diversifies offtake
The joint venture will be owned by WhiteWater/I Squared (
100% interest in Whistler pipeline, a ~450-mile, 42-inch intrastate pipeline transporting natural gas from an interconnect with the Waha Header in the Permian Basin toAgua Dulce, TX , near the starting point of the proposedRio Bravo pipeline100% interest in theRio Bravo pipeline project, ~137-miles of new 42-inch and 48-inch pipelines transporting natural gas from the Agua Dulce supply area to NextDecade's Rio Grande LNG project inBrownsville, Texas 70% interest in ADCC pipeline, a ~40-mile, 42-inch proposed intrastate pipeline designed to transport 1.7 Bcf/d of natural gas from the terminus of the Whistler pipeline inAgua Dulce, TX to Cheniere's Corpus Christi LNG export facility (the pipeline is expected to be in-service in Q3 2024 and is expandable up to 2.5 Bcf/d)50% interest in Waha Gas Storage, a ~2.0 Bcf gas storage cavern facility, with additional topside facilities capable of injection and withdrawal
Approximately
Upon closing of the transaction, Enbridge will contribute its wholly-owned
"Acquiring a meaningful equity interest in an integrated Permian natural gas pipeline and storage network that is directly connected to our existing infrastructure at
Enbridge will be contributing its
This transaction is expected to unlock future growth opportunities for Enbridge to connect sustainable natural gas production to export markets as part of its USGC strategy.
"The transaction optimizes our investment capacity by increasing the efficiency of our capital. We will begin receiving immediate cash flow and will share in future growth opportunities," said Pat Murray, EVP and Chief Financial Officer of Enbridge. "Having access to new Permian natural gas infrastructure enhances and increases the visibility of our medium-term growth outlook, while being accretive to our balance sheet."
Closing is expected in the second quarter of 2024, subject to receipt of required regulatory approvals and satisfaction of other customary closing conditions.
About Enbridge Inc.
At Enbridge, we safely connect millions of people to the energy they rely on every day, fueling quality of life through our North American natural gas, oil, and renewable power networks and our growing European offshore wind portfolio. We are investing in modern energy delivery infrastructure to sustain access to secure, affordable energy and building on more than a century of operating conventional energy infrastructure and two decades of experience in renewable power. We are advancing new technologies, including hydrogen, renewable natural gas, carbon capture, and storage, and are committed to achieving net zero greenhouse gas emissions by 2050. Headquartered in
Forward-looking information, or forward-looking statements, have been included in this news release to provide information about Enbridge and its subsidiaries and affiliates, including management's assessment of Enbridge and its subsidiaries' future plans and operations. This information may not be appropriate for other purposes. Forward-looking statements are typically identified by words such as ''anticipate'', ''expect'', ''project'', ''estimate'', ''forecast'', ''plan'', ''intend'', ''target'', ''believe'', "likely" and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information or statements included or incorporated by reference in this document include, but are not limited to, statements with respect to Enbridge's investment in the joint venture and related matters (the "Transaction"), including anticipated accretion and other benefits of the Transaction; characteristics, in service dates and other matters relating to current and proposed assets and growth and expansion opportunities of the joint venture, including the
Although Enbridge believes these forward-looking statements are reasonable based on the information available on the date such statements are made and processes used to prepare the information, such statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties and other factors, which may cause actual results, levels of activity and achievements to differ materially from those expressed or implied by such statements. Material assumptions include assumptions about the following: the expected supply of, demand for and prices of crude oil, natural gas, natural gas liquids (NGL), liquified natural gas (LNG) and renewable energy; energy transition, including the drivers and pace thereof; global economic growth and trade; anticipated utilization of our assets; exchange rates; inflation; interest rates; availability and price of labour and construction materials; the stability of our supply chain; operational reliability and performance; customer, regulatory and stakeholder support and approvals, including with respect to the Transaction; anticipated construction and in-service dates; weather; expectations about our joint venture partners' ability to complete and finance projects; announced and potential acquisition, disposition and other corporate transactions and projects and the timing and impact thereof, including the Transaction; governmental legislation; litigation; impact of the Company's dividend policy on its future cash flows; credit ratings; hedging program; expected EBITDA and expected adjusted EBITDA; expected earnings/(loss) and adjusted earnings/(loss); expected earnings/(loss) or adjusted earnings/(loss) per share; expected future cash flows and expected future distributable cash flow (DCF) and DCF per share; estimated future dividends; financial strength and flexibility; debt and equity market conditions; general economic and competitive conditions; ability of management to execute key priorities; and the effectiveness of various actions resulting from the Company's strategic priorities. Assumptions regarding the expected supply of and demand for crude oil, natural gas, NGL, LNG and renewable energy, and the prices of these commodities, are material to and underlie all forward-looking statements, as they may impact current and future levels of demand for the Company's services. Similarly, exchange rates, inflation and interest rates impact the economies and business environments in which the Company operates and may impact levels of demand for the Company's services and cost of inputs and are, therefore, inherent in all forward-looking statements. Due to the interdependencies and correlation of these macroeconomic factors, the impact of any one assumption on a forward-looking statement cannot be determined with certainty, particularly with respect to expected EBITDA, expected adjusted EBITDA, expected earnings/(loss), expected adjusted earnings/(loss), expected DCF and associated per share amounts, and estimated future dividends. The most relevant assumptions associated with forward-looking statements regarding announced projects and projects under construction, including estimated completion dates and expected capital expenditures, include the following: the availability and price of labour and construction materials; the stability of our supply chain; the effects of inflation and foreign exchange rates on labour and material costs; the effects of interest rates on borrowing costs; the impact of weather; and customer, government, court and regulatory approvals on construction and in-service schedules and cost recovery regimes.
Enbridge's forward-looking statements are subject to risks and uncertainties pertaining to the realization of anticipated benefits and synergies of projects and transactions including the Transaction, successful execution of our strategic priorities, operating performance, regulatory parameters, litigation, acquisitions and dispositions and other transactions, including the Transaction, project approval and support, renewals of rights-of-way, weather, economic and competitive conditions, global geopolitical conditions, political decisions, public opinion, changes in tax laws and tax rates, exchange rates, interest rates, inflation, commodity prices, and supply of and demand for commodities, including but not limited to those risks and uncertainties discussed in this and in the Company's other filings with Canadian and U.S. securities regulators. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent and Enbridge's future course of action depends on management's assessment of all information available at the relevant time. Except to the extent required by applicable law, Enbridge assumes no obligation to publicly update or revise any forward-looking statements made in this news release or otherwise, whether as a result of new information, future events or otherwise. All forward-looking statements, whether written or oral, attributable to Enbridge or persons acting on the Company's behalf, are expressly qualified in their entirety by these cautionary statements.
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SOURCE Enbridge Inc.
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