Enbridge Energy Partners L.P. (EEP) reported first-quarter 2011 earnings of 31 cents per unit, well below the Zacks Consensus Estimate of 38 cents and the year-earlier profit of 37 cents. Results were lower than expected mainly due to higher operating costs in liquids and natural gas segments. These were partially compensated by additional revenues from liquid pipelines resulting from incremental volumes and rates associated with Alberta Clipper Pipeline.
Total revenue in the quarter surged more than 18% year over year to $2.29 billion, faring better than the Zacks Consensus Estimate of $2.09 billion.
Importantly, Enbridge declared a cash distribution rate of 51.375 cents per unit ($2.055 per unit annualized) during the quarter. Moreover, the partnership also maintained a 2−5% distribution growth through 2013.
Operational Performance
Operating income in the Liquids segment increased nearly 20% year over year to $149.7 million, attributable to a hike in the transportation rate, the completion and commencement of its Alberta Clipper Pipeline as well as higher average daily volumes delivered from all major liquid systems. These positives were partially tempered by the increase in operating and administrative, and power and depreciation expenses associated with additional assets the company placed into service in 2011.
The partnership’s volumes in the Liquids system upped nearly 7% year over year to 2,136 thousand barrels per day.
Operating income in the Natural Gas segment shot up more than 55% year over year to $41.1 million, primarily attributable to higher natural gas and natural gas liquids volumes and associated increase in fees on its Anadarko and Elk City systems.
During the quarter, Natural Gas throughput improved nearly 24% from the year-earlier period to 2,583,000 million British thermal units per day (MMBtu/d).
The Marketing segment’s operating income plunged 49% year over year to $3.0 million. The decline can be credited to the restricted scope of recognizing benefits from price differences between receipt and delivery locations where natural gas is bought and sold by the segment.
Outlook
Enbridge is fairly active on organic as well as inorganic growth fronts. Its largest organic growth project, the Bakken crude oil pipeline expansion, in association with Enbridge’s recent acquisition of Elk City Gathering and Processing System, is expected to widen the exposure in the liquids-rich region.
Recently, the partnership has also made important agreements with major natural gas producers in order to facilitate gathering, treating and transmission services in Shelby, Sabine, San Augustine and Nacogdoches counties.
However, we remain apprehensive about its midstream natural gas business, which is sensitive to changes in natural gas supply, demand fundamentals and commodity cycles associated with gas processing margins. Intense competition from MLPs such as Kinder Morgan Energy Partners L.P. (KMP) and Enterprise Products Partners L.P. (EPD) is an added cause for concern.
Our long-term Neutral recommendation remains unchanged and the company holds a Zacks #3 Rank, which is equivalent to a short-term ‘Hold’ rating.
ENBRIDGE EGY PT (EEP): Free Stock Analysis Report
ENTERPRISE PROD (EPD): Free Stock Analysis Report
KINDER MORG ENG (KMP): Free Stock Analysis Report
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