Enbridge Inc. (TSX:ENB) (NYSE:ENB) has proposed to transfer its 66.7% interest in the US segment of the Alberta Clipper Pipeline to its affiliate, Enbridge Energy Partners LP (NYSE: EEP) for $900 million. EEP is the owner of the other 33.3% interest.
The proposed consideration includes cash of approximately $300 million, plus approximately $600 million of Class E equity units to be issued to Enbridge by EEP. The proposed transfer and terms are subject to review and recommendation by an independent committee of the board of directors of Enbridge Energy Management LLC, the delegate of EEP's general partner, and to approval by that board. The transfer is targeted to close by the end of 2014.
The US segment of Alberta Clipper Pipeline earns a stable cost of service return that is not subject to variations in throughput or operating costs. The transfer will not require any issuance of equity to the public by EEP, and is expected to be accretive to distributable cash flow per unit by 3%.
The Class E units to be issued to Enbridge would be entitled to the same distributions as the Class A units held by the public and would be convertible into Class A units on a one-for-one basis at Enbridge's option. The Class E units would be redeemable at EEP's option after 30 years, if not converted by Enbridge. The units would have a liquidation preference equal to their fair value on closing. Enbridge's economic interest in EEP would increase from 34% to 36% as a result of the transfer.
The US segment of the Alberta Clipper Pipeline is a 36-inch-diameter, 325-mile-long crude oil pipeline from the US border near Neche, North Dakota, to Superior, Wisconsin. The initial capacity of the line is 450,000 barrels per day (bpd) and was constructed under the terms of a joint funding agreement under which Enbridge funded two-thirds of the capital costs in return for a corresponding economic interest in the earnings and cash flow from the investment. The line is being expanded in two phases to a capacity of 800,000 bpd through the addition of increased pumping horsepower. The required expansion investments are subject to separate joint funding arrangements between Enbridge and EEP.