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Enbridge Receives PUC Nod for Line 3 Replacement Project

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After three years, Enbridge Inc (ENB - Free Report) , Enbridge Energy Partners, L.P. and Enbridge Income Fund Holdings Inc have received approval to proceed with Line 3 Replacement Project. The news has annoyed protestors who believe that the project is a threat to pristine areas. The protestors will continue to express their dissent and use regulatory methods to disrupt the project.

The Minnesota Public Utilities Commission (PUC) has given Enbridge a Certificate of Need for the project. Despite protests from various sectors, PUC’s decision was based on the worsening condition of the existing line, built in the 1960s.

PUC approved Enbridge's line and incorporated minor alterations and certain conditions. The replacement of Line 3 will include a new passage in its path. Currently, the pipeline extends from Alberta, Canada, moves through North Dakota and Minnesota to Enbridge's terminal in Superior, WI.

It has been highly debated whether refineries in Minnesota and Midwest need additional oil. Currently, Enbridge runs Line 3 at about 50% of its original capacity of 760,000 barrels per day for security reasons and transports only light crude.

Per the project’s antagonists, including the Minnesota Department of Commerce, the refineries need the additional oil as demand will fall in the coming years when people switch to electric cars and renewable energy sources. Eventually, the oil will be exported.

The decision has not made any impact on the cost estimate of the Line 3 Replacement project.  The cost is projected at $5.3 billion in Canada and $2.9 billion in the United States with about $3.6 billion of capital spent till date. Enbridge reiterated that the project will be brought online in the second half of 2019.

The project indicates the company's low-risk business profile and long-term cash flow stability. It is supported by a 15-year surcharge which will be applicable on each barrel dispatched through Enbridge's Mainline system.

Price Performance

In the past three months, Enbridge’s shares have gained 5.2% compared with the industry’s 4.7% rise.


Zacks Rank & Key Picks

Enbridge currently has a Zacks Rank #3 (Hold).

A few better-ranked players in the same sector are Occidental Petroleum Corporation (OXY - Free Report) and China Petroleum and Chemical Corporation (SNP - Free Report) , also known as Sinopec. These stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Occidental Petroleum is an international oil and gas exploration and production company. It pulled off an average positive earnings surprise of 30.2% in the last four quarters.

Sinopec is one of the largest petroleum and petrochemical companies in Asia. The company delivered an average positive earnings surprise of 492.8% in the last four quarters.

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