We reaffirmed our Neutral recommendation on
Enbridge Energy Partners L.P.
) on Aug 27, 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, which transfers over 60% of the Canadian oil output into
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
provide a steadily growing earnings profile. We remain positive
on Enbridge given its increased 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 in 2013 - 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 and from increasing production
in 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 in
2013. Enbridge is also assessing other expansion projects worth
$4 billion through 2015, including potential 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
While we prefer to remain on the sidelines for Enbridge, there
are other stocks in the sector that appear rewarding. These
Carrizo Oil & Gas Inc.
Matador Resources Company
Range Resources Corporation
), which are expected to perform impressively over the next few
months and carry a Zacks Rank #1 (Strong Buy).
CARRIZO OIL&GAS (CRZO): Free Stock Analysis
ENBRIDGE EGY PT (EEP): Free Stock Analysis
MATADOR RESOURC (MTDR): Free Stock Analysis
RANGE RESOURCES (RRC): Free Stock Analysis
To read this article on Zacks.com click here.