As energy stocks have continued to sell off in Canada, investors have largely appeared to have exited the space completely. Many energy infrastructure companies such as pipelines have been included in these broad sector-wide selloffs.
The majority of the reason for pessimism among many investors with respect to pipelines continues to be uncertainty around the ability of counterparties to pay their bills and fulfill various transportation agreements which would be voided in a bankruptcy situation, as well as the fact that even small reductions in revenue could be problematic given the massive debt loads many of these pipeline companies have had to take on to build out multi-billion-dollar pipelines and pay these off over decades, relying on steady and prescribed revenue levels.
The good news for investors in large pipeline companies like Enbridge Inc. (TSX:ENB)(NYSE:ENB) and TC Energy (TSX:TRP) is these pipelines are filled with product from Canada’s largest producers generally (at least the lion’s share of volume is secured with blue chip producers), and the nature of many of these contracts happens to be "take or pay," meaning producers pay for a specified volume transported, regardless of whether the oil actually moved or not.
I would encourage defensive, long-term investors to keep large pipeline operators like Enbridge and TC Energy on your watch list in the coming weeks.
Invest wisely, my friends.
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