Enbridge Energy (EEP) Q2 Earnings & Revenues Miss Estimates

Zacks

Enbridge Energy Partners L.P. (EEP) reported second-quarter 2014 adjusted earnings of 21 cents per unit, which was below the Zacks Consensus Estimate of 23 cents. The quarterly figure, however, increased 61.5% from the year-earlier profit of 13 cents.

Total revenue in the quarter rose 11.9% to $1,871.1 million from the year-ago level of $1,672.7 million but lagged the Zacks Consensus Estimate of $2,155 million.

Distribution

Enbridge declared quarterly cash distribution rate of 55.55 cents per unit ($2.22 per unit annualized), up 2.1% from the preceding quarter.

Operational Performance

Operating income in the Liquids segment jumped 38.7% to $232.8 million in the quarter from the year-earlier level of $167.9 million. The segment witnessed higher indexed transportation rates, in addition to higher deliveries, primarily based on the Lakehead and North Dakota systems. Further, contribution from growth projects that were commissioned during 2013, in particular the Bakken Pipeline Expansion, Bakken Berthold Rail, Bakken Access and Lakehead system expansion projects, contributed to higher revenues. The commissioning of a large component of its Eastern Access program, especially the 160-mile segment of Line 6B replacement project from Griffith, IN to Stockbridge, MI further added to earnings. Nevertheless, this was more than offset by higher operating and administrative expenses.

The partnership’s volumes in the Liquids system rose 28.6% year over year to 2,578 thousand barrels per day.

Operating income of the Natural Gas segment decreased nearly 51% year over year to $7.7 million. The decline was primarily due to lower natural gas throughput and natural gas liquids production volumes on major systems resulting from reduced dry gas drilling activity, delayed well completions in its East Texas region and lower drilling activity in the Anadarko region. This was partially mitigated by lower operating and administrative expenses.

During the quarter, Natural Gas throughput fell to 2,155,000 million British thermal units per day (MMBtu/d) from the year-earlier level of 2,527,000 MMBtu/d.

Outlook

Enbridge Energy remains optimistic about its long-term growth. It expects various organic projects to be commissioned in 2014. These projects are characterized by their longer term and lower risk. The partnership’s business model will help to take forward its parent company, Enbridge Inc.’s (ENB) initiative to increase capacity in the Lakehead System and the Eastern Access Projects with its commissioning scheduled for 2014. The partnership is undertaking various initiatives to grow in the Liquids segment, as witnessed by its pipeline expansions for quickening the movement of resources from the Bakken region.

However, we remain apprehensive about Enbridge Energy’s midstream natural gas business, which is sensitive to changes in natural gas supply, demand fundamentals and commodity cycles associated with gas processing margins.

At present, Enbridge Energy carries a Zacks Rank #3 (Hold). Better-ranked stocks in the oil and gas sector like Weatherford International plc (WFT) and CNOOC Ltd (CEO), both sporting a Zacks Rank #1 (Strong Buy) are expected to perform better.

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