This Energy Giant Just Bought 500 Miles of Pipeline in America's Busiest Oil Field. Here's Why.

Salt Creek Midstream is selling its crude oil gathering business for $600 million. The 500-mile system gathers oil in the heart of the prolific Delaware Basin. The buyer is the Canadian energy infrastructure giant Enbridge (NYSE:ENB).

While $600 million might seem like a rounding error for Enbridge, considering its more than 10 billion Canadian dollars ($7.2 billion) annual growth capital investment capacity, it's an important strategic deal for the energy giant. Here's why it's buying these assets and what the deal means for investors in the pipeline stock.

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What Enbridge is buying and where

Enbridge is buying Salt Creek Midstream's crude oil gathering business, which incudes 100% of the Orla and Wink North systems and a 50% interest in the Delaware Crossing system. The systems feature roughly 500 miles of crude oil gathering infrastructure in the core of the Delaware Basin, which is one of the most prolific and competitive oil fields in North America. The three gathering systems have a combined throughput capacity of 420,000 barrels per day and a storage capacity of 350,000 barrels. The system serves more than 20 oil and gas producers, backstopped by about 320,000 net dedicated acres under long-term commercial agreements with an average remaining term of around 10 years. The assets should generate stable, long-term cash flows and provide a durable foundation for growth.

While that stable cash flow is important for Enbridge to support its high-yielding dividend (currently over 5.5%), the acquisition is far more strategically important. The system delivers crude oil to several long-haul pipelines in the region, including Enbridge's majority-owned Gray Oak Pipeline (68.5% stake) and the Cactus II Pipeline (30% interest). As a result, it will provide a direct strategic connection between oil produced in the Permian Basin and export capacity at the Enbridge Ingleside Energy Center (EIEC), North America's largest crude oil export terminal. It will extend its presence deeper into the Permian Basin and strengthen its value chain, enabling it to offer more customers well-to-water integration through its connected pipeline system and export capacity.

The impact on Enbridge

Enbridge expects the acquisition to be immediately accretive to its distributable cash flow per share and its earnings per share. That will enhance its ability to sustain and grow its dividend. However, the transaction won't boost its results this year, since it doesn't expect to close the deal until later in 2026. Instead, it should be modestly additive to 2027's cash flow and earnings. Enbridge had already expected an acceleration starting next year from its current 3% compound annual growth rate to around 5% per year as its cash tax rate levels out. This acquisition will further pad next year's financial results.

The bolt-on nature of this acquisition also aligns with Enbridge's capital allocation strategy. Thanks to its reasonable dividend payout ratio (60%-70% of its cash flows) and solid investment-grade balance sheet (4.5x-5.0x target range), it has CA$10 billion-CA$11 billion ($7.2 billion-$7.9 billion) in annual growth capital investment capacity. While most of that capacity will go toward its massive and growing backlog of organic expansion projects (CA$41 billion of secured projects as of the end of the second quarter or $25.6 billion), it has room to make accretive acquisitions that enhance its platform.

The acquired assets also provide a foundation for future growth. Enbridge could further extend its value chain in the Delaware Basin by making additional bolt-on acquisitions or approving additional capacity expansions in the region or further downstream. For example, Enbridge has room to expand EIEC, including further export dock expansions. It sees the potential to invest up to another CA$1.5 billion ($1.1 billion) into this terminal in 2027 and beyond.

A small, but notable deal

The purchase of Salt Creek Midstream's crude oil gathering business isn't a needle-mover for Enbridge. However, it's still a strategically important deal for the pipeline giant. It will also be immediately accretive to its earnings when it closes later this year, providing additional support for its growing dividend. That will enhance its ability to continue growing shareholder value. The company's combination of steady growth and reliable income (31 years of increases in Canadian dollars) makes it one of the best energy stocks to buy and hold for the long term.

Matt DiLallo has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.