Access Denied for the Moment

In the course of the last six months, opposition to the Dakota Access oil pipeline transformed from just another distant protest into an international cause célèbre. The federal government’s attitude changed as well, from issuance of the final construction permit to its suspension and ultimately a rejection Sunday.

That action came after a five-hour meeting Friday between pipeline company representatives and their Native American opponents didn’t produce a last-chance compromise. Instead of granting an easement that would let Energy Transfer Partners (NYSE: ETP) install the final  link in the nearly 1,200-mile pipeline under the Missouri River, the Army Corps of Engineers ordered a new environmental review to consider alternative routes.

The decision followed months of protests against the pipeline by the Standing Rock Sioux and their environmentalist and Native American allies. They have cited the pipeline’s threat to drinking water, sacred sites and the environment as well as broader opposition to fossil fuels.

By ordering a formal environmental review the Obama Administration sought to shield its action from an immediate reversal next month by the incoming Trump Administration. Pipeline opponents are certain to sue over any attempt to curtail a review in progress.

Energy Transfer is determined to proceed with its planned river crossing, and confident of getting its way under President Trump, who’s already expressed support. Energy Transfer CEO Kelcy Warren was a major Trump campaign donor. But Sunday’s announcement complicated matters and likely pushed back completion of the pipeline, initially planned for year-end, until late spring at the earliest. The Dakota Access  could be on hold much longer than that, depending on court rulings.

It’s an unquestionable setback for the pipeline and the company, albeit almost certainly a temporary one. In any case, ETP’s unit price as well as that of its parent Energy Transfer Equity (NYSE: ETE), which has also lagged of late, appeared to have largely discounted another delay already, pulling back just 2% Monday only to recoup that loss the next day.

While the pipeline is important for Energy Transfer, it’s worth noting that the estimated $265 million in annual EBITDA it might contribute after accounting for money due to joint venture partners would represent only about 5% of ETP’s annual total.

The recent spike in oil prices and corresponding acceleration in shale oil producers’ drilling plans is much more important for a diversified midstream processor like Energy Transfer.

Growth pick ETE remains our top-ranked Best Buy below $22. ETP is a Hold pending its planned merger with Sunoco Logistics (NYSE: SXL), which remains a buy below $28 in the Growth Portfolio.

 

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