Kinder Morgan Inc., Enbridge Inc. and NuStar Energy LP stand to see financial windfalls should a judge decide to shut down the Dakota Access LLC crude oil pipeline while it completes an environmental review, analysts at East Daley Capital Advisors said.
U.S. District Court for the District of Columbia’s Judge James Boasberg will rule as early as April 19 whether the 570,000-barrel-per-day pipeline that transports Bakken Shale crude oil must shutter. Dakota Access began operating in 2017, but an easement granted by the U.S. Army Corps of Engineers for Missouri River crossing has been challenged by the Standing Rock Sioux Tribe and other groups. During an April 9 hearing, the Army Corps told the court it will not take any additional enforcement action at this time, though the agency may consider action at a later date.
Meanwhile, Boasberg must rule on a separate pending injunction issued by the Standing Rock Sioux and other tribes to force the Energy Transfer LP-operated pipeline’s closure.
A shutdown would also benefit companies owning other pipelines and crude rail terminals with spare transportation capacity out of North Dakota’s Williston Basin.
East Daley said Kinder Morgan could be in for a “$19 million EBITDA upside” if its Double H pipeline takes on additional volumes. Even though Enbridge owns part of Dakota Access, Enbridge would still likely experience a net $39 million EBITDA gain because its other Bakken oil pipelines could absorb displaced barrels.
When it comes to crude by rail, NuStar “is an obvious winner” since its St. James rail terminal could add $22 million of annualized EBITDA should Dakota Access be forced to empty out, East Daley noted. Crestwood Equity Partners LP’s COLT Hub rail facility could also store and load additional crude volumes, but the firm’s gas gathering exposure remains a risk.
“This upside is potentially outweighed by the risks to drilling activity and volumes on the Arrow gathering system, which accounts for ~50% of company EBITDA,” the analysts said.
On the other side of the table, Energy Transfer and fellow owner MPLX LP can more easily absorb the financial impacts of a shutdown than Phillips 66 Partners LP, whose 25% stake in Dakota Access accounted for 21% of the master limited partnership’s distributable cash flow in 2020, according to East Daley. The analysts do not expect Phillips 66’s midstream arm to be able to cover its dividend without Dakota Access flows, and other industry analysts anticipate the refiner may buy out the MLP due in part to that uncertainty.
Dakota Access, meanwhile, might also be setting up a U.S. Supreme Court bid as it requested a federal appeals court review of a decision that upheld the removal of authorization for the company’s crude oil pipeline to cross the Missouri River. Asking for an en banc review by the entire U.S. Appeals Court for the District of Columbia Circuit would be “a necessary first step in an eventual appeal to the Supreme Court,” Height Securities LLC told clients April 13. “We would expect a decision denying rehearing in the coming months.”