Zacks_Analysts' Blog : Enterprise Buys Pipeline Interest - Analyst Blog

Enterprise Products Partners L.P. (EPD) on Tuesday purchased a 70% interest in the Rio Grande Pipeline from HEP Navajo Southern L.P. – a subsidiary of Holly Energy Partners L.P. (HEP) – through its 100% subsidiary, Enterprise Products Operating LLC. 

Enterprise will serve as an operator and BP plc (BP) will retain its 30% ownership stake in the natural gas liquids (NGL) pipeline as before.

The 265-mile, 8-inch diameter NGL pipeline originates near Odessa, Texas, in Ector County, basically transporting a butane/propane mix to a Pemex-owned interconnect at the Mexican border south of El Paso. Thereafter, Pemex transports the NGLs to its Mendez Terminal near Juarez, Mexico for distribution to consumers. At present, the pipeline has the capacity to transport as much as 25,000 barrels of NGLs per day.

Enterprise has been engaged in providing value-added services to its customers for a long time. The Teppco merger has expanded the partnership's business of providing services to producers and consumers of natural gas and NGLs into the transportation and storage of refined products.

This transaction shows the partnership’s ability to efficiently provide value-added services for customers and accretive cash flow for Enterprise investors.

Apart from growth through acquisition, we believe that Enterprise's solid financial position will help to develop new organic growth opportunities that will expand its integrated system. The partnership’s organic growth opportunities are one of the best in the MLP space.

However, these positives are already reflected in the partnership’s valuation, leaving little room for any upside from the current level. As such, we are maintaining our Neutral recommendation.