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Enbridge Energy Trims Guidance

Zacks Equity Research

Houston, Texas-based master limited partnership (MLP) Enbridge Energy Partners L.P. (EEP) lowered its full year 2012 forecast to account for the timid natural gas liquids (NGLs) price environment.

Enbridge now expects adjusted net income for 2012 in the range of $440−$470 million, which is down from the previous forecast of $510−$550 million. The partnership also pointed out that it intends to reduce its spending toward natural gas business in the near term given the volatile natural gas and NGL commodities market.

Although the partnership remains apprehensive for its natural gas business in the near future, it stated that the adverse effect will be mitigated by its existing commodity hedging provisions.

Enbridge reaffirmed its cash distribution growth target of 2–5% over the next couple of years. It remains upbeat about the performance of the liquids pipeline systems. The projects –– the majority of which will likely be productive in 2013 –– are driven by the sharp rise in liquids drilling from prolific shale plays in the U.S., including the Bakken Expansion, Seaway Reversal/Expansion and the Texas Express NGL pipeline.

Meanwhile, the partnership faces a record $3.7 million fine by the U.S. Department of Transportation's pipeline regulation agency –– Pipeline and Hazardous Material Safety Administration (:PHMSA) –– due to a 2010 oil spill from its pipeline in Michigan. The incident, which took place in July 2010, spilled more than 20,000 barrels of oil near the Kalamazoo River, in what is considered one of the largest pipeline leaks in the U.S.

While we treat this leakage as a one-off event, the partnership’s investment strategy and the diversification of its asset base are the key factors that have created opportunities for long-term growth. Enbridge’s organic growth program is also impressive, and its commitment of return value to unitholders is reflected through its distribution growth guidance.

Enbridge Energy units have a Zacks #3 Rank (short-term Hold recommendation), with an unchanged long-term Neutral recommendation. Intense competition from MLPs such as Kinder Morgan Energy Partners L.P. (KMP) and Enterprise Products Partners L.P. (EPD) is an added cause for concern.

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