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An Overflow of News on Pipelines

There has been a lot of news in the world of pipelines over the past week. Here were some of the major news stories.

Movement on Dakota Access

Last week President Trump signed a directive designed to speed up approval of the stalled Dakota Access Pipeline (DAPL). Among other things the directive instructed the Secretary of the Army to consider rescinding a December memorandum by the Assistant Secretary of the Army that voided a previously issued environmental assessment (EA). The December memorandum called for studying additional pipeline routes, stalling the project.  

Pipeline protesters celebrated this as a victory at the time, but I have argued repeatedly that the Obama Administration overreached in this case. The previous EA by the Army Corps of Engineers had been issued with a “Finding of No Significant Impact” from construction of the pipeline. It seemed likely this would be one of the first issues addressed by the Trump Administration.

Last week’s directive helped propel the entire MLP sector to strong gains on the week. In fact, 25 MLPs had gains of at least 5% last week as the move was a clear indication that the new administration would be more supportive of pipeline projects. Units of Energy Transfer Partners (NYSE: ETP) — the pipeline’s principal backer — have rallied by 9% since the beginning of last week.  

This week Sen. John Hoeven, R-N.D., said that the acting Secretary of the Army has directed the Corps to “proceed with the easement.” The Department of the Army acknowledged the directive, but said that it would continue to accept public comments through Feb. 20 for an environmental impact assessment.

Oneok Rolls Up Its Partners

In other news, units of the Oneok Partners (NYSE: OKS) master limited partnership surged more than 20% on an announcement that its general partner ONEOK (NYSE: OKE) would acquire all units that it does not currently own for $9.3 billion in ONEOK stock. Each outstanding common unit of ONEOK Partners that ONEOK does not already own will be converted into .985 shares of ONEOK common stock, representing a 22.4% premium based on the Jan. 27 closing prices of the two securities.

The stated reasons for the merger were a lower cost of funding with elimination of incentive distribution rights, improved capital markets access and enhanced dividend growth. The deal is expected to lift ONEOK’s distributable cash flow by more than 10% from 2018 through 2021.

Enbridge MLP Punished

After Enbridge (NYSE, TSX: ENB) closes its acquisition of Spectra Energy (NYSE: SE), likely this quarter, it will be the largest energy infrastructure company in North America. The corporate structure promises to become more complex since each company has multiple affiliated MLPs.

Enbridge’s principal U.S. affiliate, the Enbridge Energy Partners (NYSE: EEP) MLP, took a step toward simplifying its structure last Friday when it announced that it would acquire the affiliated Midcoast Energy Partners (NYSE: MEP). At the same time EEP warned that its distributable cash flow this year will be down 13% from last year at the midpoint of the respective guidance ranges, blaming lower gas gathering volumes and margins and reduced crude gathering as a result of the drilling slowdown.

Despite the news from Enbridge, 2017 looks bright for pipeline operators. Consider subscribing to MLP Profits for actionable investment advice on this high-yielding, tax-advantaged sector.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

 


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