Enbridge’s $550M Bakken Plan – Analyst Blog

Two Enbridge Inc. (ENB) affiliates − Enbridge Energy Partners L.P. (EEP) and Enbridge Income Fund − have launched a joint project to expand crude pipeline capacity in the Bakken and Three Forks formations in Montana, North Dakota, Manitoba and Saskatchewan. The project mainly aims to accommodate the rapidly growing production in the region.

 

Bakken oil formation, which stretches across northwestern North Dakota, southern Saskatchewan and parts of Manitoba and Montana, has seen an acceleration in production growth in the recent years as companies continue to focus on exploring new supplies through the latest horizontal drilling techniques.

 

The $550 million Bakken Expansion Program will involve approximately $370 million U.S. projects to be undertaken by Enbridge Energy and approximately $179.3 million Canadian projects by Enbridge Income Fund.

 

The expansion program will add approximately 145,000 barrels of oil per day (bpd) in the Bakken pipeline capacity upon completion by early 2013. The production is later expected to reach 325,000 bpd at a relatively low cost.

 

The program includes the reactivation of an unused pipeline from Berthold, North Dakota, to Enbridge’s Steelman terminal in southeastern Saskatchewan; a new pipeline from Steelman to an Enbridge main pipeline near Cromer, Manitoba; new pipelines and pumping stations in northwestern North Dakota; as well as new storage tanks at Enbridge’s terminals at Berthold, Stanley and Tioga.

 

Moreover, the project will begin at Beaver Lodge Station near Tioga, North Dakota, in the heart of the Bakken, and end at an Enbridge mainline terminal at Cromer, Manitoba.

 

Enbridge Inc. is expanding its pipeline capacity in the Bakken region to keep pace with growing production. A separate expansion of its North Dakota pipeline system, completed in January, increased capacity to 161,500 barrels a day. Additionally, an expansion of its Saskatchewan System, which is expected to be completed later this year, will increase capacity by 125,000 barrels a day.

 

Enbridge owns 27% of Enbridge Energy Partners, has 72% economic interest in Enbridge Income Fund, and manages the day-to-day operations of both.

 

We remain optimistic on Enbridge Energy’s diversified portfolio of crude oil and natural gas transportation systems in the U.S., including the Enbridge North Dakota System. At the partnership’s Liquids segment, we think growth could be driven by the expansion of the North Dakota System.

 

Major investments for new projects and the partnership’s overall performance raised Enbridge Energy’s confidence to upwardly revise its earnings guidance. Although the partnership maintains its low-to-mid single-digit distribution growth rate through 2013, the units of Enbridge Energy are currently trading at a discount. We believe some of this discount is warranted due to limited volume growth at its primary liquids transportation asset, the Lakehead System. Consequently, the stock carries a Zacks #3 Rank (Hold), with our Neutral recommendation remaining unchanged at this stage.