Enbridge Outlook: What Worry About Lower Oil and Energy Prices?

The Canadian Energy giant is reviewing a plan that could transfer its directly held U.S. liquids pipeline assets to its U.S. affiliate, Enbridge Energy Partners L.P. (NYSE: EEP). In principle the Canadian restructuring plan has been approved by the board of directors.

Enbridge’s U.S. liquid pipeline systems include strategic assets such as Flanagan South, Spearhead, Seaway, Toledo and Southern Access Extension pipelines. Both companies have jointly funded several other major expansions in the Lakehead pipeline system in the Great Lakes region in the United States.

The previously mentioned pipeline systems and jointly funded projects are very attractive investments for Enbridge Energy Partners because they are largely underpinned by low-risk commercial frameworks.

Mark A. Maki, president of Enbridge Management, said:

The potential drop down of Enbridge’s U.S. liquids pipelines systems would add substantial new sources of long-lived and growing cash flows to EEP’s already exceptional portfolio of liquids pipeline systems. The restructuring plan under consideration by Enbridge once again demonstrates the strategic alignment and support of our sponsor Enbridge, and its commitment to enhancing the value of EEP for all of our investors.

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Also the board is considering a 67% interest transfer in the U.S. segment of the Alberta Clipper pipeline to Enbridge Energy Partners, which if approved, is expected to be completed by the end of 2014.

Enbridge had guidance for 2015 as $2.05 to $2.35 in earnings per share before reflecting accretion resulting from the transfer of its Canadian Liquids Pipelines business, which is expected to be approximately 10% on an annualized basis. Thomson Reuters has a consensus estimate of $2.25 in earnings per share for 2015.

Seemingly as a result of this and other capital projects in the works, Enbridge’s board also has approved a revised dividend payout policy range of 75% to 85% of adjusted earnings. The previous payout policy range was 60% to 70%. It is worth noting that the payout rate is expected to rise from the lower end of the new range in 2015 to the higher end by 2018.

Al Monaco, president and CEO of Enbridge, commented on the dividend increase:

The 33% increase in our dividend that we announced today and 14% to 16% expected annual average dividend growth rate through 2018 reflects Management’s confidence in the strength and embedded cash flow growth from the existing assets and the capital projects that will be put into service over the next four years.

The reaction to both of these announcements has been positive and shares were up almost 11% at $53.13 in the first two hours of trading Thursday. The stock has a consensus analyst price target of $59.13 and a 52-week trading range of $40.25 to $57.19.

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