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A new path for the Bakken pipeline

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World Pipelines,

Enbridge Energy Partners, L.P. (EEP) and Enbridge Inc. (Enbridge or the company), have announced that EEP and Marathon Petroleum Corporation (Marathon Petroleum) have formed a new joint venture, which in turn has entered into an agreement to acquire a 49% equity interest in the holding company that owns 75% of the Bakken Pipeline System (Bakken Pipeline or the ‘System’) from an affiliate of Energy Transfer Partners, L.P. (Energy Transfer) and Sunoco Logistics Partners L.P. (Sunoco Logistics). Under this arrangement, EEP and Marathon Petroleum would indirectly hold 75% and 25%, respectively, of the joint venture's 49% interest in the holding company of Bakken Pipeline. The purchase price of EEP's effective 27.6% interest in the System is US$1.5 billion. Closing of the transaction is subject to certain conditions, and is expected to occur in the third quarter of 2016.

The System consists of the Dakota Access Pipeline (DAPL) and the Energy Transfer Crude Oil Pipeline (ETCO) projects. Phillips 66 owns the other 25% in each pipeline project. Both the DAPL and ETCO projects are highly contracted and secured by long-term take-or-pay contracts with creditworthy counterparties.

"This acquisition is an attractive opportunity to participate in a pipeline system that will transport crude oil from the prolific Bakken formation in North Dakota to markets in eastern PADD II and the US Gulf Coast (USGC) providing another important link in our market access strategy that is driven by improving netbacks and access to the best markets for our customers. The pipelines offer competitive tolls, a significant level of long-term take-or-pay commitments from high credit quality customers, and strong risk-adjusted returns. Potential also exists for expansion of the pipelines should customer demand warrant. The investment is expected to be immediately accretive to distributable cash flow when the pipeline projects come into service, which we expect will occur by the end of 2016," said Mark Maki, President for EEP.

Guy Jarvis, Executive Vice President - Liquids Pipelines and Major Projects of Enbridge, noted: "The Bakken Pipeline System is a great example of how the right acquisition can support and bolster our liquids pipelines strategy, while also supporting our US sponsored vehicle - EEP. In addition to the obvious project benefits, Enbridge also looks forward to working with Bakken Pipeline to develop joint toll solutions that would provide an attractive opportunity to once again, cost effectively extend the reach of Enbridge's existing liquids pipelines system. Joint tolls will provide improved market access for customers, including a new path to the USGC via our mainline system through our recently completed Southern Access Extension into the Patoka Hub where it will be available for connection to ETCO. This will provide our shippers the ultimate potential to reach the eastern USGC, which has been a strategic priority for us."

DAPL is a new 30 in. dia. pipeline from the Bakken/Three Forks production area in North Dakota to market centers in Patoka, Illinois. DAPL is expected to initially deliver in excess of 470 000 bpd of crude oil and has the potential to be expanded to 570 000 bpd. The pipeline has six origin locations in North Dakota and delivers to Patoka. The construction of terminals began in January 2016, mainline pipeline construction began in May 2016, and all major materials and equipment have been procured.

ETCO, formerly one of the Trunkline pipelines, is a converted natural gas pipeline from Patoka to the Sunoco Terminal in Nederland, Texas. The pipeline consists of 62 miles of new 30 in. dia. pipe, 686 miles of converted 30 in. dia. pipe, and 40 miles of converted 24 in. dia. pipe. Construction of the new pipe began in April 2016. Both the pipe conversion and the pump stations are over 90% complete. Both DAPL and ETCO are expected to be ready for service by the end of 2016.

EEP intends to enter into a bridge financing arrangement with Enbridge (US) Inc., a wholly-owned subsidiary of the company, to fund EEP's US$1.5 billion investment at closing. The company is also taking steps to ensure that EEP has sufficient capital to permanently fund the investment in the System. To that end, it has proposed a longer-term, joint funding arrangement to EEP through which both the company and EEP would fund the investment and participate in the returns generated by the System. As part of this arrangement, the company has also indicated a willingness to provide funding to EEP to support EEP's ongoing investment.

The terms of this arrangement are subject to the review of a committee of independent directors of the Board of Directors of the delegate of EEP's general partner, who will consider this arrangement in addition to other potential sources of long-term funding. While the terms of any joint funding arrangement with respect to the System are still in development, in prior joint funding arrangements, EEP has retained 25 – 33% interests in large greenfield development projects being undertaken by the Enbridge group with options to acquire additional interests.

The company believes that under a variety of possible longer term funding scenarios, the acquisition of the System will generate attractive returns and near term cash flow accretion for both EEP and the company. The company plans to initially fund its investment in EEP from available liquidity which has been bolstered through the issuance of more than CAN$3.0 billion of equity and CAN$1.2 billion of debt securities across the Enbridge group of companies thus far in 2016.

Upon successful closing of the transaction, EEP and Marathon Petroleum plan to terminate their transportation services and joint venture agreements for the Sandpiper Pipeline Project. EEP continues to believe the Bakken region is a highly productive and attractive basin, which has significant crude oil supply growth potential that will require additional pipeline capacity in the future. The scope and timing of the Sandpiper Pipeline Project will be evaluated during the quarter to ensure that it is positioned to meet the growing need for pipeline capacity while offering customers competitive tolls and strong netbacks. Additionally, in conjunction with a termination of the Sandpiper joint venture agreements with Marathon Petroleum, EEP will retain 100% ownership in our legacy North Dakota system, which is one of the most competitive outlets available to producers in the State.

Edited from source by Stephanie Roker

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