Enbridge announced the acquisition of Tallgrass Energy’s crude oil business for US$2.55B, paying 10-11x 2027 EBITDA (pre-synergies) and adding to the slate of deals done in recent weeks. In tandem, the company also announced a $2.6B equity raise, partly offsetting the acquisition cost and protecting its balance sheet flexibility.
Strategically, the Pony Express Pipeline and Powder River Gateway will connect the Bakken, Powder River & Denver-Julesburg basins, providing direct access to 500 kbpd of refining capacity and adding a corridor from the Rockies to the US Gulf Coast.
The Pony Express Pipeline (75% acquired interest) is a 1,050 mile, ~460 kbpd crude system that connects Guernsey, Wyoming to Cushing, Oklahoma, and the Powder River Gateway (51% acquired interest) is a 240 kpbd gathering system that moves production from the Powder River Basin to Guernsey.
In addition, Enbridge will assume the US$0.3B expansion project to Pony Express, with PXP2 expected to add 55 kbpd of capacity when it enters service in late 2027.
Our belief is that this expansion is intended to address the bottleneck presented by the 22-inch pipeline running between Sterling, Colorado and Natoma, Kansas. Tallgrass had intended to upgrade the line to 24-inch pipeline, although Enbridge may elect to twin the segment instead.
Enbridge’s recent deals have been focused on US infrastructure, which we believe is a reflection of geopolitical developments that have upended views on energy security…
… and increased the value of North American assets, a trend that could prompt more industry consolidation.
We're funding the total $4.5 billion for these acquisitions through an equal combination of debt/equity. The remaining equity raised provides us future financial flexibility as we navigate this high growth environment that we're currently in… By funding these acquisitions conservatively, we're ensuring that M&A does not crowd out future accretive projects or reduce our ability to continue executing on our organic growth program.
