Enbridge Energy Partners L.P. (EEP) reported second-quarter 2012 adjusted earnings of 23 cents per unit, which missed the Zacks Consensus Estimate of 30 cents. The quarterly figure also deteriorated 28.1% from the year-earlier profit of 32 cents. The lower natural gas liguids price realization as well as throughput affected the partnership’s quarterly performance.
Total revenue in the quarter declined 34.6% year over year to $1,551.1 million from the year-ago level of $2,372.0 million. The reported figure also missed the Zacks Consensus Estimate of $2,016.0 million.
Distribution
Enbridge declared its cash distribution rate of 54.35 cents per unit ($2.17 per unit annualized), up from its cash distribution rate of 53.25 cents per unit ($2.13 per unit annualized) in the preceding quarter. The partnership’s 2.1% sequential distribution increase is in sync with its planned 2-5% distribution growth through 2013.
Operational Performance
Operating income in the Liquids segment increased 6.4% to $155.5 million in the quarter from the year-earlier level of $146.1 million. The segment experienced higher average daily volumes on all its major liquids systems. Midwest region commanded robust growth due to encouraging refining economics.
The partnership’s volumes in the Liquids system surged 12.7% year over year to 2,265 thousand barrels per day in the reported quarter.
Operating income of the Natural Gas segment plunged more than 23% year over year to $43.3 million in the second quarter, primarily due to the natural gas liquid (NGL) price deterioration.
During the quarter, Natural Gas throughput dropped to 2,685,000 million British thermal units per day (MMBtu/d) from the year-earlier level of 2,794,000 MMBtu/d.
The Marketing segment registered an operating loss of $2.5 million versus operating loss of $0.5 million in the prior-year period. The meek natural gas price environment is largely responsible for this lackluster performance. Again, the restricted scope of recognizing benefits from price differences between receipt and delivery locations where natural gas is bought and sold by the segment was also responsible for the decrease.
Outlook
Enbridge Energy is fairly active in organic as well as inorganic growth ventures in liquids and natural gas segments. The company’s approach toward the natural gas segment explains its focus on the Granite Wash and Haynesville fronts.
The partnership is making efforts to grow in the Liquids segment as witnessed by growth in western Canada and the Bakken formation. The partnership remains positive about its long-term growth. It expects various organic projects to be commissioned in 2013 and 2014. These projects are characterized by their longer term and low risk.
On the flip side, Enbridge Energy recently reported an oil release from Line 14, which forms part of the partnership’s Lakehead System. The reason of the spill remains unclear. Parent company Enbridge Inc. (ENB) intends to replace the section of the pipeline that spilled about 1,200 barrels of oil in the Wisconsin field.
The incident is likely to affect Enbridge Energy’s plans to make expansions in crude oil mainline pipeline system worth $3.2 billion. The project was proposed to transfer crude from western Canada to the Eastern refineries as well as avoid obstacles in the U.S. Midwest. The initiative would comprise capacity addition to the company’s Lakehead System and the Eastern Access Projects with its commissioning scheduled for 2014.
Further, 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. Our long-term Neutral recommendation remains unchanged at this stage and is supported by a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
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