Enbridge Joins JV to Link Permian Gas to Growing LNG and USGC Demand

Enbridge Inc. (TSX: ENB) (NYSE: ENB) has announced its definitive agreement with WhiteWater/I Squared Capital ("WhiteWater/I Squared") and MPLX LP ("MPLX") to establish a joint venture aimed at developing, constructing, owning, and operating natural gas pipeline and storage assets. These assets will serve to connect Permian Basin natural gas supply to the expanding LNG and U.S. Gulf Coast ("USGC") demand.

The agreement entails several key highlights for Enbridge: first, the acquisition of a significant equity interest in the joint venture; second, immediate accretion to DCF per share, driven by approximately 90% contracted cash flows; third, the prospect of immediate, recurring, and expanding cash flow from operational assets, with minimal exposure to commodity risks; fourth, optimization of Enbridge's balance sheet through increased EBITDA and a reduction in the company's share of future capital expenditure for the Rio Bravo pipeline project, aligned with its economic interest in the venture; and fifth, the presence of embedded organic expansion opportunities within the joint venture, offering enticing growth prospects while diversifying offtake.

The joint venture's ownership structure will comprise WhiteWater/I Squared (50.6%), MPLX (30.4%), and Enbridge (19.0%). It will include the following assets:

•      100% interest in Whistler pipeline, a ~450-mile, 42-inch intrastate pipeline facilitating the transport of natural gas from the Waha Header interconnect in the Permian Basin to Agua Dulce, TX, situated near the starting point of the proposed Rio Bravo pipeline.

•        100% interest in the Rio Bravo pipeline project, encompassing approximately 137 miles of recently built pipelines, ranging in size from 42 inches to 48 inches. These pipelines are specifically designed for the transportation of natural gas from the Agua Dulce supply region to NextDecade's Rio Grande LNG project located in Brownsville, Texas.

•         A 70% interest in the ADCC pipeline, a planned ~40-mile, 42-inch intrastate pipeline designed to convey 1.7 billion cubic feet per day (Bcf/d) of natural gas from the termination point of the Whistler pipeline in Agua Dulce, TX, to Cheniere's Corpus Christi LNG export facility. This pipeline, expected to commence operations in Q3 2024, can be expanded up to 2.5 Bcf/d.

•      A 50% interest in Waha Gas Storage, encompassing a ~2.0 Bcf gas storage cavern facility, complemented by additional topside facilities equipped for injection and withdrawal operations.

Approximately 98% of the capacity is contracted under long-term, take-or-pay contracts, with an average contract length exceeding 10 years. Moreover, around 90% of counterparties are investment grade, including leading operators in the Permian Basin.

Upon closing, Enbridge will contribute its wholly-owned Rio Bravo pipeline project and approximately US$350 million in cash to the joint venture. Additionally, Enbridge will fund the first approximately US$150 million of post-closing capex to complete the Rio Bravo pipeline project. Enbridge will be granted a 19% equity stake in the joint venture, while maintaining a 25% economic interest in the Rio Bravo pipeline project.

Cynthia Hansen, EVP and President, Gas Transmission and Midstream of Enbridge, expressed excitement about the acquisition of a significant equity interest in an integrated Permian natural gas pipeline and storage network. She highlighted the benefits of enhancing Enbridge's super-system approach, which aims to bring energy supply to areas of high demand and provide last-mile connectivity to domestic and export customers.

Enbridge's contribution of the Rio Bravo pipeline project will extend the joint venture's existing infrastructure to serve LNG and other customers on the USGC. The company's share of post-closing capex for the Rio Bravo pipeline project will be 100% of the first approximately US$150 million and, thereafter, proportionate to its aggregate economic interest in that project.

The transaction is anticipated to unlock future growth opportunities for Enbridge to connect sustainable natural gas production to export markets as part of its USGC strategy. Pat Murray, EVP and Chief Financial Officer of Enbridge, noted that the transaction optimizes the company's investment capacity by enhancing capital efficiency, generating immediate cash flow, and sharing in future growth opportunities. It also provides access to new Permian natural gas infrastructure, enhancing Enbridge's medium-term growth outlook while being accretive to its balance sheet.

Closing of the transaction is expected in the second quarter of 2024, subject to receipt of required regulatory approvals and satisfaction of other customary closing conditions.