All Hail the New King of Pipelines

By Robert Rapier • September 8, 2016 • Energy Stocks

North America’s four largest energy infrastructure companies based on enterprise value are Kinder Morgan (NYSE: KMI), Energy Transfer Equity (NYSE: ETE), Enbridge (NYSE: ENB) and Enterprise Products Partners (NYSE: EPD). But the rankings are about to be shaken up.

This week Spectra Energy (NYSE: SE) agreed to merge with Canada’s Enbridge in a $28 billion all-stock deal that would vault the combined company to the top of the rankings. The new, enlarged Enbridge would have an enterprise value (EV) of $127 billion. By comparison, the EV of Kinder Morgan, the current leader, is $93.7 billion.

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Source: Enbridge/Spectra merger presentation

Spectra Energy shareholders are to receive 0.98 Enbridge shares for each share they own. That will give them a combined 43% of the expanded company, which will retain the Enbridge name. The deal provides Spectra shareholders with a premium of 11.5% based on the Sept. 2 closing prices.

The transaction is expected to close in the first quarter of 2017, subject to shareholder votes at both Enbridge and Spectra as well as regulatory approvals. The latter aren’t expected to block the deal, as Enbridge is chiefly a transporter of Canadian crude, while U.S.-based Spectra is predominantly involved in natural gas storage and transmission.

The combined company expects to increase the dividend 15% upon completion of the transaction, for an expected yield of 4.6% based on the current share price, and projects visible organic annual dividend growth of 10-12% through at least 2024.

Enbridge and Spectra both have affiliates. Enbridge Energy Partners (NYSE: EEP) and Enbridge Energy Management (NYSE: EEQ) aren’t expected to be part of the merger. Nor is Spectra’s own affiliated MLP Spectra Energy Partners (NYSE: SEP).

Spectra has been good to the subscribers of of MLP Profits and The Energy Strategist who’ve followed our advice, and we provided in-depth coverage of its big deal this week along with more timely portfolio recommendations.

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About The Author

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It's hard to imagine anyone better suited to covering the energy-investment waterfront than Robert Rapier.

Robert is no armchair analyst—he has two decades of in-the-trenches experience in a wide range of fossil fuel and biofuel technologies, including refining, natural gas production, gas-to-liquids, ethanol production and butanol production.

During a six-year stretch at ConocoPhillips, Robert ran a team of engineers in Scotland working on oil and gas projects in the North Sea.

For two years, Robert was an efficiency expert in a Texas petrochemical plant. The process changes he implemented saved the facility $9 million a year. He later worked as the Engineering Director for a Dutch environmental-technology company and provided engineering support for a Chinese facility the company was constructing.

Robert was also a butanol engineer in Germany for the Celanese Corporation, where he designed a novel butanol unit that cut production costs by $5 million per year.

In all, Robert has spent more than a dozen years working on liquid fuels technologies. Along the way he's picked up five patents, including one for a breakthrough way to convert ethane into ethylene (U.S. Patent 7,074,977).

Now, in addition to guiding readers to timely investments in Utility Forecaster and Rapier's Income Accelerator, Robert travels the world evaluating startup energy companies for deep-pocketed investors. After grilling management and assessing the technology on-site, he makes a go/no-go investment decision. His wealthy private investors and hedge fund backers trust him to make the right choice for the same reason we do: his vast real-world experience in just about every facet of the energy industry. If Robert votes thumbs-up, millions of dollars flow into these cutting-edge outfits.

Robert earned his master of science in chemical engineering and a bachelor of science in chemistry and mathematics (double major) at Texas A&M University. He tells us he was "this close" to finishing his Ph.D. before he decided he was having a lot more fun making money in energy stocks.

A prolific writer, Robert's articles have appeared in Forbes, The Wall Street Journal, The Washington Post and the Christian Science Monitor -- and he has been a featured expert on 60 Minutes and The History Channel. His new book, Power Plays: Energy Options in the Age of Peak Oil (Apress, 2012), helps investors sort through doom and gloom, hype and misinformation to understand the true costs, benefits and trade-offs for each of our major energy options.

In what little spare time he has left, Robert consults for a number of energy projects, including biodiesel, ethanol, butanol and biomass gasification facilities.