Out to Pasture


Through an indirect subsidiary, Enbridge Energy Company Inc, Enbridge Inc (ENB) has agreed to acquire Midcoast Energy Partners (MEP) for $8/unit, or $170 million. The transaction is expected to close in the second quarter of 2017. Upon closing, MEP will no longer be a publicly traded partnership. MEP was formed by Enbridge Energy Partners L.P. (EEP) to serve as EEP’s primary vehicle for owning and growing its natural gas and NGL midstream business in the US. MEP and EEP are part of the ENB family of companies. ENB said the deal would help reduce costs and simplify its corporate structure but it’s worth mentioning MEP will be facing significant headwinds going forward. EDC models show MEP’s Adjusted Op Income falling from ($25) million in 2016 to ($86) million in 2017. MEP is highly levered to gathering and processing in the Western Anadarko, North Texas and East Texas, all areas with little to no drilling activity. These are all tier three basins, which are fully described in EDC’s recent report Dirty Little Secrets, a tough place to be. Hedges partially protected the company from lower commodity prices in 2015 and 2016, but these rolled off at the end of 2016. (Tickers: EEP, MEP, ENB)

About The Author Justin Carlson

I have over 10 years of experience in data analysis, research, and consulting across the energy sector. I currently serve as Vice President of Research and Managing Director at East Daley Capital, an energy assets research firm that is changing how investors look at midstream energy risk with an asset-driven information service that combines proprietary research with a trusted team of unbiased, experienced energy analysts. My insights and analysis bring greater transparency to the energy financial market by quantifying potential risks by asset and enabling investors to make more informed and accurate projections and investments. Prior to joining East Daley Capital, I was a senior manager at Platts, a division of McGraw Hill Financial, which acquired Bentek Energy, where I was a senior member of the leadership team.