Enbridge Energy Partners L.P. (EEP) reported fourth-quarter 2013 adjusted earnings of 12 cents per unit, lagging the Zacks Consensus Estimate of 26 cents. The quarterly figure was also lower than the year-earlier profit of 18 cents. The decline was mainly due to lower NGL prices that hurt the margins in the natural gas business.
Full-year 2013 adjusted earnings came in at 54 cents per unit, missing our expectation of 68 cents and falling 45.5% from the year-ago profit level of 99 cents.
The quarter’s total revenue increased 10.8% year over year to $1,962.0 million from the year-ago level of $1,771.2 million. The reported figure also beat the Zacks Consensus Estimate of $1,822.0 million.
For the full year, total revenue increased 6.1% to $7,117.1 million from the year-ago level of $6,706.1 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 increased 39.7% to $185.8 million in the quarter from the year-earlier level of $133.0 million. The increased revenues were attributable to higher transportation rates as well as deliveries in its Lakehead and North Dakota pipeline systems. Moreover, contributions from projects commissioned earlier in the year, in particular the Bakken Pipeline Expansion, Bakken Berthold Rail and Lakehead system expansion projects, also fueled the growth. This was partially offset by higher indexed transportation rates, in addition to contributions from growth projects entering into service earlier in the year.
The partnership’s volumes in the Liquids system increased 9.3% year over year to 2,313 thousand barrels per day in the reported quarter.
Operating income of the Natural Gas segment declined 90.7% year over year to $4.0 million. The decrease was primarily due to a decline in pricing spreads between the major NGL market hubs, lower NGL prices, in addition to lower NGL and natural gas volumes in the systems. Further, producer freeze-offs due to extreme weather conditions and unplanned downtime at one of its facilities negatively impacted its profitability.
During the quarter, Natural Gas throughput dropped to 2,222,000 million British thermal units per day (MMBtu/d) from the year-earlier level of 2,564,000 MMBtu/d.
The Marketing segment registered operating income of $0.4 million versus an operating loss of $1.4 million in the prior-year quarter. The improvement was primarily attributable to the expiration of certain firm natural gas transportation demand fees on third party pipelines and additional optimization opportunities from modestly improved natural gas basis spreads.
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 terms and lower risks. 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 the 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 (Hold). However, there are other stocks in the oil and gas sector – Helmerich & Payne, Inc. (HP) and Cabot Oil & Gas Corporation (COG) – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.
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