Canadian-based midstream company Enbridge will form a joint venture (JV) with Whitewater/I Squared Capital and MPLX to transport natural gas from the Permian Basin to the Gulf Coast, according to a March 26 news release.
The deal strategically knits together the assets of three Permian infrastructure companies to transport natural gas volumes to LNG export facilities.
“The deal was largely unexpected and is the first of its kind to integrate newly built Permian gas takeaway directly into USGC LNG facilities,” Zack Van Everen, an analyst at TPH&Co., wrote in a March 26.
WhiteWater/I Squared will own a majority 50.6% stake in the JV. MPLX, an MLP formed by Marathon Petroleum, will have 30.4% interest and Enbridge will own the remaining 19%. The deal is expected to close in the second quarter.
The JV will own several pipeline projects slated for construction. The assets include ownership of the planned Rio Bravo pipeline project—a 137-mile pipeline transporting up to 4.5 Bcf/d of natural gas from the Agua Dulce supply area to NextDecade's Rio Grande LNG project in Brownsville, Texas. The pipeline project is slated for a start date in 2025 and completion in the second half of 2026.
The JV will also hold a 70% interest in the ADCC pipeline, a 40-mile proposed natural gas line designed to transport 1.7 Bcf/d from the terminus of the Whistler pipeline in Agua Dulce, Texas, to Cheniere's Corpus Christi LNG export facility. The pipeline is expected to be in service by the third quarter.
Existing facilities make up part of the agreement, including ownership of the Whistler pipeline, a 450-mile line that takes natural gas from an interconnect with the Waha header in the Permian Basin to a terminus near the starting point of the proposed Rio Bravo pipeline. The JV also includes 50% interest in Waha Gas Storage, a 2 Bcf gas storage cavern facility.
"This transaction is a continuation of MPLX's wellhead-to-water growth strategy, enhancing our natural gas value chain in the Permian Basin and South Texas. The strategic combination of these assets positions the Whistler Pipeline system for future capacity expansions to meet increasing demand for natural gas supply to Gulf Coast LNG facilities," said Dave Heppner, senior vice president of MPLX.
Enbridge has sought to expand its footprint in the Permian and the Gulf Coast over the last few months. In early March, the company announced $500 million in investments in the region, with $200 million going towards an expansion of its Ingleside Energy Center near Corpus Christi, Texas, and another $100 million towards a capacity expansion of the Gray Oak Pipeline, which transports natural gas from the Permian to Corpus Christi and Houston.
“This is a great way to enhance our super-system approach, bringing energy supply to places where it is needed most and providing last mile connectivity to domestic and export customers," Cynthia Hansen, Enbridge’s president, gas transmission and midstream, said in the news release.
Financially, Enbridge said the JV would be immediately accretive to discretionary cash flow per share, with about 90% contracted cash flows. The transaction would also optimize EBITDA by increasing the company’s share of the Rio Bravo project capex to an amount proportional to its financial interest in the project, the company said.
Currently, approximately 98% of the company’s pipeline capacity in the Permian is contracted under long-term contracts with an average term of more than 10 years.
Once the deal is closed, Enbridge plans to contribute the Rio Bravo pipeline project and $350 million in cash to the JV. The company will fund the first $150 million of the post-closing capex to complete the Rio Bravo and will have a 25% economic interest in the project, according to the company’s statement.