Enbridge: Partnership Profits

06/13/2014 7:00 am EST

Focus: MLPS

Elliott Gue

Editor and Publisher, Energy and Income Advisor and Capitalist Times

Given all the capital flowing into the MLP space and the frothy valuations at which some of our favorite names trade, we've focused primarily on undervalued names that offer higher yields and under-appreciated growth prospects, suggests Elliott Gue, energy sector expect and editor of Capitalist Times.

Enbridge Energy Partners LP (EEP) has seen its stock price tick up over the past few months, fueled, in part, by upgrades from research analysts at Credit Suisse and Simmons & Company, and higher-than-expected cash flow growth in the first quarter.

Our discussions with Enbridge Energy's management at the National Association of Publicly Traded Partnerships' annual MLP investor conference increased our confidence in the MLP's turnaround story, which began with the spin-off of its gas-handling assets as Midcoast Energy Partners LP (MEP).

The proceeds from dropping down the remaining interest in these assets will help to fund an impressive slate of growth projects at Enbridge Energy Partners.

These opportunities include the Sandpiper Pipeline, which will transport crude oil from the Bakken Shale to Marathon Petroleum (MPC) refineries and the Line 3 replacement, which will move heavy crude oil from Alberta, CA to the US.

Unlike the Keystone XL proposed by TransCanada (TRP), the latter project doesn't require the approval of the US State Department to move forward. The new Line 3 pipeline also will dramatically reduce Enbridge Energy Partners' integrity testing and maintenance costs, while effectively doubling the system's capacity.

The assistance of Canadian midstream giant Enbridge (ENB), which owns the general-partner interest and an 18.3% equity stake in Enbridge Energy Partners, helps to alleviate the burden of financing the Line 3 replacement.

And once units of Enbridge Energy Partners appreciate to a normal valuation, Enbridge will start to drop down assets to the MLP. Buy Enbridge Energy Partners LP up to $32.00 per unit.

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