Dakota Pipeline Investors Could Face Major Hit After Adverse Ruling

By Tim McLaughlin and Liz Hampton | July 7, 2020

BOSTON/DENVER — Large investors in the Dakota Access Pipeline, including Phillips 66, could be on the hook for hundreds of millions in payments, after a U.S. court on Monday ordered the shutdown of the major artery.

The U.S. District Court for the District of Columbia ordered Energy Transfer LP to shut and empty the largest pipeline from the North Dakota shale oil fields within 30 days, saying the U.S. Army Corp of Engineers failed to provide an adequate environmental impact statement.

The 570,000-barrel-per-day pipeline carries oil from the Bakken shale to the Midwest and Gulf Coast and has been protested by Native American tribes and environmental groups.

Last year, the pipeline raised $2.5 billion in net proceeds from a bond offering snapped up by U.S. insurance companies and mutual funds. Dakota Access LLC and Energy Transfer Crude Oil Co LLC guaranteed repayment of the debt.

A backstop to that debt is an agreement by investors in Dakota Access LLC to contribute equity in the event of a ruling against the pipeline.

The Dakota Access ownership group is represented by Energy Transfer (38%), Phillips 66 (25%), Enbridge Inc (28%) and Marathon Petroleum Corp (9%), according to a 2019 Moody’s Investors Service report that rated the bond offering “Baa2.”

Phillips 66 disclosed in May that its maximum potential contribution under the equity agreement was about $631 million, according to a filing with the U.S. Securities and Exchange Commission. Marathon Petroleum’s maximum contribution is $230 million, according to a filing.

Canada’s Enbridge and Marathon Petroleum also are part of the agreement that could require financial support for the bonds.

Energy Transfer vowed on Monday to pursue legal action to fight the decision, while Marathon Petroleum stressed the importance of the pipeline for Midwest refineries.

Phillips 66 said the pipeline should be allowed to operate during the judicial process, but did not comment on its financial obligations.

Enbridge said the financial impact of the Dakota Access shutdown would be minimal because of the size of its investment and ability to reroute crude.

Owners of the pipeline debt include Metropolitan Life Insurance Co and mutual funds run by Vanguard Group, JPMorgan Chase & Co and BlackRock Inc, SEC filings show.

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