Enbridge’s Spectra Takeover Seen Spurring an MLP Consolidation

  • Phillips 66 says its stake in DCP will remain “status quo”
  • Enbridge seen consolidating MLP assets in long run: analysts

Pipeline giant Enbridge Inc. has indicated that, for now, the master-limited partnerships it amasses from a $28 billion takeover of Spectra Energy Corp. will be run just as they have been, separately.

Analysts are saying they’re bound for consolidation.

“They do have a lot of MLPs, and it’s going to confuse the whole structure,” Bloomberg Intelligence energy analyst Michael Kay said Monday. “You can see them consolidating some of them in the long run. There will be movement.”

Such is today’s pipeline business that a merger between two companies actually involves a complex range of entities -- the result of the U.S. shale boom that gave birth to a generation of these oil and gas pipeline partnerships known as MLPs. While both Spectra and Enbridge have rallied on the news of their merger, Spectra Energy Partners LP slumped and DCP Midstream Partners LP -- an MLP that Spectra and refiner Phillips 66 jointly own -- saw more tempered gains. The contrast highlights investors’ concerns about the fate of these units post-merger.

Spectra and Enbridge spokesmen referred to comments Enbridge Chief Executive Officer Al Monaco made in a conference call with investors last week, during which he said he doesn’t “expect any change” to Spectra’s MLP and would continue to review Enbridge Energy Partners LP and Midcoast Energy Partners LP for potential changes. The company will look for “opportunities to simplify” once the merger is complete, he said.

Phillips 66 said Monday that it expects to keep its 50 percent stake in DCP “status quo.”

Related: Enbridge May Have Just Touched Off a ‘Supermajor’ Race for Pipes

“In most mergers, you say, ‘There will be no changes for the foreseeable future, so everybody relax and move forward,”’ said Skip Aylesworth, who manages the $1.5 billion Hennessey Gas Utility Fund from Boston. “It never winds up that way.”

Enbridge may take two to three years to decide the structure of its MLPs after closing on Spectra, Aylesworth said. When it finally happens, he said, “You might end up with two of the four” units.

TransCanada’s Decision 

A decision by TransCanada Corp. may end up foreshadowing the fate of the Enbridge-Spectra MLPs, Kay and Aylesworth said. TransCanada agreed earlier this year to buy Columbia Pipeline Group Inc. for $10.2 billion. Columbia Pipeline’s MLP slid 19 percent when the deal was announced.

“Whatever TransCanada does,” Aylesworth said, “you can expect Enbridge to shortly follow.”

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