Enbridge Disappoints in 1Q

Zacks Equity Research

Enbridge Energy Partners L.P. (EEP) has reported first-quarter 2012 adjusted earnings of 28 cents per unit, which missed the Zacks Consensus Estimate of 37 cents. The quarterly figure also deteriorated 9.7% from the year-earlier profit of 31 cents. Although the company pointed out that several unusual events adversely affected its quarterly performance, increased volumes and fee-based revenues on its important liquids systems, along with higher volumes and associated revenues on its Anadarko natural gas system partly compensated for the negatives.

Total revenue in the quarter declined 20.5% year over year to $1,819.5 million from the year-ago level of $2,288.9 million. The reported figure also missed the Zacks Consensus Estimate of $2,274.0 million.


Enbridge declared its cash distribution rate of 53.25 cents per unit ($2.13 per unit annualized). Earlier, the partnership planned to maintain a 2−5% distribution growth through 2013.

Operational Performance

Operating income in the Liquids segment increased by 6.2% to $159.0 million in the quarter from the year-earlier level of $149.7 million. The segment experienced higher average daily volumes on all its major liquids systems with emphasis on the Canadian oil sands and North Dakota region. Higher fee-based revenues and improved transportation rates on its Lakehead system also contributed to the positives.

The partnership’s volumes in the Liquids system surged 8.6% year over year to 2,319 thousand barrels per day in the reported quarter. 

Operating income of the Natural Gas segment shot up more than 27% year over year to $52.5 million in the first quarter, primarily attributable to the natural gas and natural gas liquid (NGL) volumes. Improved processing margins on its Anadarko system and a $6.8 million year-over-year decrease in depreciation expense also added to this.

During the quarter, Natural Gas throughput declined marginally to 2,576,000 million British thermal units per day (MMBtu/d) from the year-earlier level of 2,583,000 MMBtu/d.

The Marketing segment registered an operating loss of $3.2 million versus operating income of $3.0 million reported 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.


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 the growth associated with its general partner Enbridge Inc.’s (ENB) initiatives to facilitate crude oil producers in two projects, namely the U.S. Gulf Coast and Eastern extension. Additionally, recent expansions to its Anadarko and Elk City pipeline systems are expected to widen the exposure to the liquids-rich region.

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 master limited partnerships 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 at this stage and is supported by a Zacks #3 Rank, which is equivalent to a short-term Hold rating.

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