Enbridge announces strategic JV in natural gas infrastructure development

In a significant move to bolster North America’s energy infrastructure, Enbridge Inc. (TSX: ENB) (NYSE: ENB) has declared its entry into a definitive agreement with WhiteWater/I Squared Capital and MPLX LP. This partnership is set to create a joint venture aimed at developing, constructing, owning, and operating crucial natural gas pipeline and storage assets. These facilities are designed to connect the rich natural gas supply from the Permian Basin to the increasing demand for LNG and energy needs across the U.S. Gulf Coast.

At the heart of this deal is Enbridge’s acquisition of a meaningful, strategic equity interest in the joint venture, which is expected to be immediately accretive to its distributable cash flow (DCF) per share. This financial uplift is underpinned by approximately 90% of the joint venture’s cash flows being contracted, ensuring a steady, recurring, and growing cash inflow with minimal exposure to commodity price volatility. Moreover, Enbridge’s balance sheet is anticipated to benefit significantly from an increase in EBITDA and a reduction in its share of future capital expenditures for the Rio Bravo pipeline project, proportional to its economic stake.

The joint venture will be primarily owned by WhiteWater/I Squared (50.6%), MPLX (30.4%), and Enbridge (19.0%). It will encompass a comprehensive asset portfolio, including a 100% interest in the Whistler pipeline, a major artery over approximately 450 miles, designed to transport natural gas from the Permian Basin to Agua Dulce, TX. This portfolio also includes a full interest in the Rio Bravo pipeline project, a new pipeline network extending about 137 miles, aimed at facilitating natural gas transport to the Rio Grande LNG project in Brownsville, Texas. Other assets include a 70% stake in the ADCC pipeline and a 50% interest in Waha Gas Storage facilities, enhancing the joint venture’s capacity and operational reach.

Enbridge’s contribution to this joint venture includes its wholly-owned Rio Bravo pipeline project and approximately US$350 million in cash. Furthermore, Enbridge is committed to funding the first US$150 million of the post-closing capital expenditures necessary to complete the Rio Bravo pipeline project. This investment secures Enbridge a 19% equity interest in the joint venture and maintains a 25% economic interest in the Rio Bravo pipeline project, subject to certain redemption rights of the joint venture partners.

Cynthia Hansen, EVP and President, Gas Transmission and Midstream at Enbridge, expressed enthusiasm about the venture, highlighting the enhancement of Enbridge’s super-system approach and the strategic connectivity it brings to their infrastructure. Pat Murray, EVP and Chief Financial Officer of Enbridge, also noted the transaction’s optimization of investment capacity, immediate cash flow benefits, and visibility into medium-term growth, all of which are accretive to the company’s financial health.

The closing of this transformative transaction is anticipated in the second quarter of 2024, pending regulatory approvals and customary closing conditions. This venture is poised to unlock significant future growth opportunities for Enbridge, connecting sustainable natural gas production with key export markets as part of its strategic focus on the U.S. Gulf Coast.

This partnership marks a strategic pivot for Enbridge, leveraging its infrastructure to meet the growing energy demands efficiently. The joint venture not only strengthens Enbridge’s position in the natural gas market but also aligns with broader energy transition goals by ensuring a reliable supply of natural gas to key areas. As the global energy landscape continues to evolve, this venture is a testament to the strategic foresight of Enbridge and its partners, promising to deliver significant economic and environmental benefits.