Enbridge Inc. (NYSE:ENB) has agreed to buy Blackstone-owned Tallgrass Energy's crude oil business for $2.55 billion in cash, expanding its presence in the U.S. liquids pipeline market. The deal includes a 75% stake in the 1,050-mile Pony Express Pipeline, a 51% interest in the Powder River Gateway system, around 8.4 million barrels of storage capacity and crude marketing operations. Pony Express can move roughly 460,000 barrels of crude per day between the Rockies and the Cushing, Oklahoma, hub.
The deal also gives Enbridge greater exposure to major producing regions, including the Bakken, Powder River and Denver-Julesburg basins. The acquisition gives Enbridge Inc. (NYSE:ENB) a stronger position in U.S. crude transportation at a time when domestic oil production is expected to remain important. Pony Express gives the company a larger presence in the Rockies and complements its existing Express-Platte system.
That combination could allow Enbridge to bring the operations together more efficiently and find synergies across its wider liquids network. The deal also gives Enbridge more than additional pipeline capacity. It adds storage infrastructure and crude marketing operations, giving the company more flexibility in how it manages and optimizes volumes.
Bringing these parts of the business together could also improve the economics of the acquired assets. Enbridge Inc. (NYSE:ENB) expects the assets to generate significant free cash flow. The company also says the transaction should add to distributable cash flow per share in the first full year after closing.
The assets also offer relatively predictable infrastructure-style cash flows. This means Enbridge does not need higher crude prices to benefit from the acquisition. The deal fits with the company's broader strategy of growing its fee-based energy infrastructure business across North America, backed by its C$41 billion secured growth backlog.
The main concern is how Enbridge Inc. (NYSE:ENB) is funding the deal and what that could mean for shareholder returns. The company is paying $2.55 billion in cash while also pursuing other growth investments, including its recent Salt Creek Midstream acquisition. reported that Enbridge plans to partly fund the Tallgrass deal through an equity offering. Raising equity can help keep the balance sheet in check, but issuing new shares could dilute existing shareholders and reduce some of the per-share benefit from the acquisition.
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