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Enbridge to transfer its interest in the Alberta Clipper Pipeline

World Pipelines,


Enbridge Inc. has announced that it has proposed to transfer its 66.7% interest in the US segment of the Alberta Clipper Pipeline to its affiliate, Enbridge Energy Partners L.P. for approximately US$ 900 million. EEP is the owner of the other 33.%  interest. The proposed consideration includes cash of approximately US$ 300 million, plus approximately US$ 600 million of Class E equity units to be issued to Enbridge by EEP. The proposed transfer and terms are subject to review and recommendation by an independent committee of the Board of Directors of Enbridge Energy Management, LLC, the delegate of EEP's general partner, and to approval by that Board. The transfer is targeted to close by the end of 2014.

The US segment of Alberta Clipper earns a stable cost of service return which is not subject to variations in throughput or operating costs. The transfer will not require any issuance of equity to the public by EEP, and is expected to be immediately accretive to distributable cash flow per unit by approximately 3%.

The Class E units to be issued to Enbridge would be entitled to the same distributions as the Class A units held by the public and would be convertible into Class A units on a one-for-one basis at Enbridge's option. The Class E units would be redeemable at EEP's option after 30 years, if not converted by Enbridge. The units would have a liquidation preference equal to their fair value on closing. Enbridge's economic interest in EEP would increase from approximately 34% to approximately 36% as a result of the transfer.

Mr. J. Richard Bird, Enbridge's Executive Vice President, Chief Financial Officer and Corporate Development commented, "This is the latest in a series of actions which Enbridge has taken to enhance EEP's distributable cash flow and restore its effectiveness as one of the sources of low cost funding for Enbridge's organic growth opportunities and, through drop downs such as this one, for Enbridge's broader growth capital program. Following these actions EEP's valuation has improved to the point where a drop down is now accretive to both EEP's distributable cash flow and to Enbridge's earnings, and we are able to accelerate this aspect of our financial strategy. This initial drop down has been intentionally structured to impose no incremental equity funding requirement on EEP given all the other actions taken to put the Partnership into a position of requiring minimal additional equity until its growth investments come into service and begin contributing to distributable cash flow. This additional step we've taken should serve to confirm that EEP's effectiveness as a sponsored vehicle has been restored, and pave the way for further drop downs."

The US segment of the Alberta Clipper Pipeline is a 36 in. diameter, 325 mile long crude oil pipeline from the US border near Neche, North Dakota to Superior, Wisconsin. The initial capacity of the line is 450 000 bpd and was constructed under the terms of a joint funding agreement under which Enbridge funded two-thirds of the capital costs in return for a corresponding economic interest in the earnings and cash flow from the investment. The line is being expanded in two phases to a capacity of 800 000 bpd through the addition of increased pumping horsepower. The required expansion investments are subject to separate joint funding arrangements between Enbridge and EEP.

Adapted from press release by Hannah Priestley-Eaton

Read the article online at: https://www.worldpipelines.com/business-news/17092014/enbridge-to-transfer-its-interest-in-the-alberta-clipper-pipeline/

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