How Are EEP’s Segments Expected to Perform in 1Q16?
Enbridge Energy Partners: A Buy ahead of 1Q16 Earnings?
EEP’s Liquids segment’s EBITDA
Enbridge Energy Partners (EEP) carries out its operations through two reportable segments: Liquids and Natural Gas. In 4Q15, Enbridge Energy Partners’ Liquids segment contributed ~90% to the company’s total EBITDA (earnings before interest, tax, depreciation, and amortization). The Liquids segment’s 4Q15 EBITDA decreased by ~1.5% year-over-year.
While this segment’s revenues increased due to higher transportation rates on new assets, its EBITDA decreased due to the higher power and operating expenses. Cost reduction measures undertaken by EEP may reduce the segment’s operating expenses, contributing to EBITDA growth in 1Q16.
The above graph shows Enbridge Energy Partners’ segmental contributions to EBITDA since the beginning of 2014.
Peers Enterprise Products Partners (EPD) and ONEOK Partners (OKS) are scheduled to report their 1Q16 results on April 28 and May 3, respectively.
EEP’s Natural Gas segment’s EBITDA
As the above graph shows, the contribution of the Natural Gas segment to EEP’s EBITDA has been relatively lower. Commodity sales, transportation, and other services contribute to the Natural Gas segment’s revenues.
The Natural Gas segment contributed only 10% to EEP’s 4Q15 EBITDA. Enbridge Energy Partners’ natural gas assets are owned by Midcoast Energy Partners (MEP). EEP owns 48.4% of Midcoast Energy Partners.
Segment’s lower operating and administrative expenses related to cost reduction measures may offset expected the EBITDA decline due to reduced natural gas and NGL (natural gas liquid) system volumes in 1Q16.
The decrease in the segment’s volumes is primarily attributable to the continued low commodity price environment, which has resulted in reductions in drilling activity from producers in Enbridge Energy Partners’ areas of operations. Enbridge Energy Partners forms ~1% of the Guggenheim Multi-Asset Income ETF (CVY).
Next, we’ll analyze Enbridge Energy Partners’ recent stock performance.
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