From Yahoo Finance · · 1m 40s
Enbridge buys Tallgrass crude for $2.55B
Enbridge pays cash for a Rockies-to-Cushing pipeline network, and takes on dilution and integration risk to get it.
In brief
Enbridge pays cash for a Rockies-to-Cushing pipeline network, and takes on dilution and integration risk to get it. The assets throw off fee-based cash flow regardless of oil prices, but an equity raise and a 10-11x EBITDA price mean execution has to be clean. Originally reported by Yahoo Finance.
A $2.55 billion cash deal
Enbridge agreed to buy Blackstone-owned Tallgrass Energy's crude oil business outright in cash, pushing deeper into the U.S. liquids pipeline market.
What comes with it
A 75% stake in the 1,050-mile Pony Express Pipeline, 51% of the Powder River Gateway system, about 8.4 million barrels of storage and crude marketing operations.
Rockies to Cushing
Pony Express moves roughly 460,000 barrels a day from the Rockies to the Cushing hub, adding exposure to the Bakken, Powder River and Denver-Julesburg basins.
It fits what they own
Pony Express complements the existing Express-Platte system, so Enbridge can run the two together and pull synergies across its wider liquids network.
“Pony Express gives the company a larger presence in the Rockies and complements its existing Express-Platte system.”
Cash flow without high oil
Enbridge expects the assets to add to distributable cash flow per share in the first full year after closing. The cash flows are infrastructure-style and predictable, so crude prices do not need to rise.
“This means Enbridge does not need higher crude prices to benefit from the acquisition.”
The funding question
Reuters reported Enbridge plans to partly fund the deal with an equity offering. New shares protect the balance sheet but dilute holders and shave the per-share benefit.
Price leaves no slack
At roughly 10-11 times forward EBITDA, the assets have to perform. Integration costs and a gradual shift toward lower-carbon energy are the other things to watch.
“That leaves Enbridge with greater exposure to an asset class where long-term growth is not guaranteed.”
Here's the gist
The assets throw off fee-based cash flow regardless of oil prices, but an equity raise and a 10-11x EBITDA price mean execution has to be clean.
