Take-or-Pay Contracts

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Enbridge's Long-Term Take-Or-Pay Contracts: What Investors Should Know
ZACKS· 2025-09-19 15:41
Core Insights - Enbridge Inc. (ENB) is a leading midstream energy company that generates up to 98% of its EBITDA from midstream assets supported by long-term take-or-pay contracts or regulated returns [1][8] Business Model - The take-or-pay agreements ensure that shippers pay fees regardless of asset usage, providing ENB with stable cash flows and shielding it from volume and price risks [2][8] - ENB's business model is characterized by predictable cash flows, high creditworthiness, and the ability to invest in growth capital projects at favorable terms [3] Industry Comparisons - Other major midstream energy companies, such as Enterprise Products Partners LP (EPD) and Kinder Morgan Inc. (KMI), also generate stable cash flows through extensive pipeline networks and long-term contracts [4][5][6] - EPD's pipeline network exceeds 50,000 miles and includes inflation-protected contracts, while KMI transports approximately 40% of the natural gas produced in the U.S. [5][6] Financial Performance - ENB shares have increased by 28.8% over the past year, outperforming the industry average gain of 26.1% [7][8] - The company trades at a trailing 12-month EV/EBITDA multiple of 15.65X, higher than the industry average of 14.08X [10] Earnings Estimates - The Zacks Consensus Estimate for ENB's 2025 earnings remains unchanged over the past week, with projected earnings of $2.19 per share [12][13]
Enbridge's Take-or-Pay Contracts: Stability in Volatile Energy Market?
ZACKS· 2025-06-05 19:15
Core Insights - Enbridge Inc.'s business model minimizes commodity price volatility and volume risks through regulated or take-or-pay contracts, which support 98% of its EBITDA [1][9] - More than 80% of Enbridge's profits come from activities that allow automatic price or fee increases, helping to offset rising costs and protect earnings and dividends in a high inflationary environment [1][9] - The stability of Enbridge's business model contributes to its investment-grade credit rating and provides long-term visibility into cash flows [2] Pipeline Operations - The Matterhorn Express Pipeline and Traverse Pipeline are significant assets for Enbridge, transporting natural gas to key markets like the U.S. Gulf Coasts from the Permian Basin, operating under take-or-pay contracts that shield against volume risks [3][4] - Shippers reserving capacity on these pipelines are investment-grade counterparties, ensuring stable fee-based revenues that are resilient to energy market volatility [4] Comparison with Peers - Other midstream companies like Kinder Morgan (KMI) and Enterprise Products Partners LP (EPD) also have stable business models supported by fee-based revenues [5] - Kinder Morgan's network of pipeline and storage assets operates under long-term take-or-pay contracts, ensuring consistent revenue streams [6] - Enterprise Products has a diversified asset portfolio and has achieved over two decades of distribution increases across various business cycles [7] Financial Performance - Enbridge's shares have increased by 37.3% over the past year, outperforming the industry average of 35.9% [8] - The company trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 15.36X, higher than the industry average of 13.95X [11] - The Zacks Consensus Estimate for Enbridge's 2025 earnings remains unchanged over the past week, with current estimates at $2.12 per share [13][14]