Enbridge Inc., the Canadian pipeline giant, agreed to acquire a smaller U.S. rival to add export capacity on the Gulf Coast.
The company is buying Moda Midstream Operating LLC for $3 billion in cash from EnCap Flatrock Midstream, Enbridge said Tuesday in a statement. Enbridge’s stock price rose as much as 50 cents to C$50.62 in Toronto, the highest since March 2020, before erasing gains.
The deal marks a shift in focus toward the U.S. market for Enbridge as it wraps up construction of the Line 3 oil sands export line after years of regulatory and legal battles to build the project. The company, which already handles about a quarter of all crude produced in North America, is betting on a strong outlook for exports of oil pumped from the Permian and Eagle Ford shale basins in Texas.
The fracking revolution has not only revived U.S. oil production over the past decade, it has turned the country into one of the largest shippers of the commodity. The deal includes Ingleside Energy Center, near Corpus Christi, Texas. Built in 2018, it’s North America’s largest crude export terminal, which loaded 25% of all U.S. Gulf Coast crude exports last year.
“Our strategy is driven by the important role that low cost, sustainable North America energy supply will play in meeting growing global demand,” Enbridge Chief Executive Officer Al Monaco said in the statement.
Enbridge will also acquire a 20% stake the Cactus II Pipeline, which connects the Permian with the Gulf Coast, plus the Viola pipeline and the Taft Terminal.
Enbridge seeks to increase its dividend and cash flow, and the Moda Midstream acquisition is a quick way to advance that strategy at a low price, Matthew Taylor, an analyst at Tudor Pickering & Holt, said by phone. Still, some investors would have wanted the company to pay down debt or invest in core assets instead, he said.
“I think the spreadsheet math makes a lot of sense but it’s not what investors were looking for at this time,” he said. Shareholders “want to see growth and returns but in a way that reduces emissions intensity and attracts new investors.”
Enbridge said the acquisition will be initially funded with current liquidity, and that the deal—which is expected to close in the fourth quarter—will immediately add to earnings.
Barclays Plc is Enbridge’s financial adviser on the deal. Sidley Austin LLP is the company’s legal counsel in its purchase agreement with Encap Flatrock Midstream to acquire Moda Midstream.
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