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How Will Enbridge (NYSE: ENB) Receive a Boost from the Phillips 66 Deal?

Story Highlights

With the successful completion of its joint venture merger deal with Phillips 66, Enbridge is all set to strengthen its U.S. Gulf Coast export position.

Enbridge Inc. (TSE: ENB) (NYSE: ENB) has successfully concluded a joint venture merger deal with Phillips 66 (PSX) to assume operations of the Gray Oak oil pipeline. Through this deal, Enbridge will be able to strengthen its U.S. Gulf Coast export position and boost its financials.

The Gray Oak operatorship is projected to be transferred to Enbridge in the second quarter of 2023. The 1,367-kilometer-long Gray Oak pipeline can ship 900,000 barrels of oil per day, according to an article published by the Financial Post. Gray Oak is already working with Enbridge’s Ingleside Energy Center (EIEC) to deliver Permian Basin oil to local Gulf Coast and worldwide export markets.

According to Enbridge, the deal will help the company leverage long-term growth opportunities in the space, as it expects the Permian oil supply to increase by nearly two million barrels per day through 2030.

The surviving joint venture holds indirect ownership interests of both companies in Gray Oak Pipeline, LLC and DCP Midstream LP. According to the deal, Enbridge will enhance its indirect economic interest in Gray Oak to 58.5% from 22.8%. At the same time, the energy infrastructure company will decrease its indirect economic interest in DCP to 13.2% from 28.3%.

Enbridge expects the deal to be immediately accretive to its bottom line. Further, the company estimates receiving $400 million in cash payments from the merged entity.

Is Enbridge a Good Stock to Buy?

As of now, analysts have mixed feelings about the stock. On TipRanks, they are cautiously optimistic about ENB, which has a Moderate Buy consensus rating based on four Buys and three Holds. Enbridge’s average price target of C$60.57 implies 9.7% upside potential. Shares of the company have grown about 16.8% year-to-date.

Further, financial bloggers are 95% Bullish on ENB, compared to the sector average of 67%. Moreover, Enbridge scores a 9 out of 10 on TipRanks, indicating that it has strong potential to outperform the market.

Final Thoughts

Enbridge is optimistic about the deal, as it can enhance the company’s pipeline-utility model and decrease its exposure to volatile commodity prices. Moreover, the cash earned from the transaction is expected to enhance the company’s financial strength and capacity to invest in more high-growth projects.

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