Enbridge Q2 Earnings Disappoint

Zacks

Enbridge Energy Partners L.P. (EEP) reported second-quarter 2013 adjusted earnings of 13 cents per unit, falling behind the Zacks Consensus Estimate of 22 cents. The quarterly figure was also lower than the year-earlier profit of 23 cents.

Total revenue in the quarter was up almost 7.8% year over year at $1,672.7 million from the year-ago level of $1,551.1 million. The reported figure was however below the Zacks Consensus Estimate of $1,750.0 million.

Distribution

Enbridge declared quarterly cash distribution rate of 54.35 cents per unit ($2.17 per unit annualized), level with the preceding quarter.

Operational Performance

Operating income in the Liquids segment rose 8% to $167.9 million in the quarter from the year-earlier level of $155.5 million. The segment witnessed higher indexed transportation rates, in addition to higher tariff recoveries for integrity initiatives. This was partially offset by lower deliveries and remediation costs associated with a terminal leak at Cushing storage facilities.

The partnership’s volumes in the Liquids system dropped 11.5% year over year to 2,004 thousand barrels per day in the reported quarter.

Operating income of the Natural Gas segment decreased 63.7% year over year to $15.7 million. The decrease was primarily due to lower NGL prices, in addition to ethane rejection at some plants situated predominantly in the Midcontinent.

During the quarter, Natural Gas throughput dropped to 2,527,000 million British thermal units per day (MMBtu/d) from the year-earlier level of 2,685,000 MMBtu/d.

The Marketing segment registered break-even operating income versus an operating loss of $2.5 million in the prior-year quarter. The increase was primarily due to the expiration of certain firm natural gas transportation demand fees on third party pipelines. Performance was also boosted by the improvement of natural gas prices.

Outlook

Enbridge Energy remains optimistic 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 lower risk. The partnership’s business model will assist the initiative of its parent company – Enbridge Inc. (ENB) – in increasing capacity in the Lakehead System and the Eastern Access Projects with its commissioning scheduled for 2014. The partnership is undertaking various growth initiatives in the Liquids segment as witnessed by pipeline expansion for expediting movement of resources from the Bakken 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. Enbridge Energy carries a Zacks Rank #3, which is equivalent to a short-term Hold rating. However, there are other stocks in the oil and gas sector – Rose Rock Midstream, L.P. (RRMS) and VOC Energy Trust (VOC) – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.
 



 

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