We reaffirmed our Neutral recommendation on
Enbridge Energy Partners L.P.
) on Nov 26, 2013, based on its complimentary position to reap
benefits from its diversified business portfolio and stable
fee-based operating income. However, a volatile natural gas price
environment is expected to weigh on the stock. The company holds
a Zacks Rank #3, which is equivalent to a short-term Hold rating.
Enbridge Energy Partners is a master limited partnership, engaged
in the gathering, processing and transmission of natural gas and
crude oil. The partnership is best known for its ownership of the
Lakehead System, one of the world's longest petroleum pipeline
systems that transfers over 60% of the Canadian oil output to the
U.S. This unique position helps the partnership to capitalize on
the growing Canadian oil sands production.
A focus on fee-based and diversified businesses has enabled
Enbridge Energy Partners to dilute its business risks, as well as
steadily increase its earnings profile. We remain positive on
Enbridge given its wider exposure to the Bakken Shale, the
Haynesville Shale and GraniteWash. We believe these growth
prospects have not been fairly captured by its current yield of
The partnership has a number of organic growth projects lined up
for the next two years, focused on natural gas liquids (NGLs) and
crude oil. The projects - the majority of which will be
productive by 2014 - are driven by the sharp rise in liquids
drilling from prolific shale plays in the U.S., including the
Bakken Expansion, Border to Flanagan Expansion, Cushing Terminal
Expansion and the Texas Express NGL pipeline.
Enbridge's Liquids segment is also poised to benefit from the
current economics of producing oil, increased output from the
Bakken Shale and Canadian Oil Sands regions as well as higher
revenues from Alberta Clipper. The partnership's $2.3 billion
capex budget for 2013 mainly comprises 74% Liquids and 26%
Natural Gas projects. In Liquids, the emphasis will likely be on
rising crude takeaway capacity in the Bakken and intensifying
capacity to ship crude eastward to the upper Midwest and Canada
refineries. The majority of projects will be commissioned by
2014. Enbridge is also assessing other expansion projects worth
$4 billion through 2015, including Alberta Clipper and Southern
Access crude pipeline expansions.
Moreover, the Texas Express Line, expected to come online by
second quarter 2014, will facilitate the transfer of additional
NGL volume to Mont Belvieu. We believe these projects will lead
to distribution growth, which is projected at 2-5% for the next
couple of years.
However, Enbridge's midstream natural gas business is sensitive
to changes in natural gas supply, demand fundamentals and
commodity cycles associated with gas processing margins.
Furthermore, through the expansion of its natural gas gathering
and processing business, Enbridge has increased its risk exposure
to commodity prices.
Other Stocks to Consider
However, until any upward revision in the Zacks Rank on Enbridge,
other better-ranked stocks in the oil and gas sector include
Matador Resources Company
SM Energy Company
Abraxas Petroleum Corp.
). These are expected to perform impressively over the next few
months and carry a Zacks Rank #1 (Strong Buy).
ABRAXAS PETE/NV (AXAS): Free Stock Analysis
ENBRIDGE EGY PT (EEP): Free Stock Analysis
MATADOR RESOURC (MTDR): Free Stock Analysis
SM ENERGY CO (SM): Free Stock Analysis Report
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