Enbridge Energy Partners L.P. (EEP) has reported second-quarter 2011 adjusted earnings of 32 cents per unit, which came in well below the Zacks Consensus Estimate of 39 cents and the year-earlier profit of 43 cents. Results were lower than expected mainly due to higher operating costs in liquids and natural gas segments.
Total revenue in the quarter surged more than 35% year over year to $2.37 billion, faring better than the Zacks Consensus Estimate of $2.11 billion.
Importantly, Enbridge declared a cash distribution rate of 53.25 cents per unit ($2.13 per unit annualized) during the quarter. Moreover, the partnership also maintained a 2−5% distribution growth through 2013.
Operational Performance
Operating income in the Liquids segment decreased nearly 13% year over year to $146.1 million, due to lower average daily volumes from its Lakehead system due to temporary problems in upstream production facility and additional transportation takeaway available to its shippers upon competing for pipelines. Transportation rate decreases on all its major liquids system also affected the segment’s adjusted operating income.
The partnership’s volumes in the Liquids system lowered nearly 5% year over year to 2,009 thousand barrels per day.
Operating income in the Natural Gas segment shot up more than 45% year over year to $56.3 million, primarily attributable to higher natural gas and natural gas liquids volumes and the associated increase in fees on its Anadarko and East Texas systems.
During the quarter, Natural Gas throughput improved more than 30% from the year-earlier period to 2,794,000 million British thermal units per day (MMBtu/d).
The Marketing segment registered an operating loss of $0.5 million versus operating income of $1.3 million reported in the prior-year period. The decline can be credited to the restricted scope of recognizing benefits from price differences between receipt and delivery locations where natural gas is bought and sold by the segment.
Outlook
Enbridge is fairly active on organic as well as inorganic growth ventures in liquids and natural gas segments. The company’s approach toward the natural gas segment focuses on Granite Wash and Haynesville fronts.
The company is also making efforts to grow in the Liquids segment as is witnessed by the growth it has achieved in the North Dakota system. It has added 25,000 barrels of capacity per day and commenced construction of 120,000 more barrels per day that is expected to be operational by early 2013 in North Dakota.
Its largest organic growth project, the Bakken crude oil pipeline expansion, in association with Enbridge’s recent acquisition of Elk City Gathering and Processing System, is 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 and the company holds a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
ENBRIDGE EGY PT (EEP): Free Stock Analysis Report
ENTERPRISE PROD (EPD): Free Stock Analysis Report
KINDER MORG ENG (KMP): Free Stock Analysis Report
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