Enbridge Energy Partners L.P. (EEP) has reported third-quarter 2011 adjusted earnings of 38 cents per unit, which missed the Zacks Consensus Estimate by a penny. However, the quarterly figure came in line with the year-earlier profit. Though the company’s crude oil, natural gas liquids (NGL), and natural gas growth strategies were impressive, these failed to generate striking results.
Total revenue in the quarter climbed more than 25% year over year to $2.37 billion from the year-ago level of $1.89 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 marginally to $169.7 million from the year-earlier level of $170.7 million. Although operating income slid, the segment experienced higher average daily volumes and transportation rates on all its major liquids system.
The partnership’s volumes in the Liquids system surged nearly 9% year over year to 2,152 thousand barrels per day.
Operating income in the Natural Gas segment shot up more than 58% year over year to $53.4 million, primarily attributable to higher natural gas and NGLs volumes and the associated increase in fees on its Anadarko and East Texas systems. The partnership’s Anadarko system gained from the Granite Wash play expansion as well as additional volumes associated with its September 2010 acquisition of the Elk City system. East Texas system benefited from new assets placed in service to capture the growing natural gas production from the Haynesville shale play.
During the quarter, Natural Gas throughput improved more than 19% from the year-earlier period to 2,841,000 million British thermal units per day (MMBtu/d).
The Marketing segment registered an operating loss of $2.8 million versus operating income of $1.1 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 the Granite Wash and Haynesville fronts.
The company is also making efforts to grow in the Liquids segment as is witnessed by the growth it is expected to achieve through the deal with Enbridge Inc. (ENB) to facilitate crude oil producers in two projects. The deal calls for a $100 million capacity expansion of Line 5 to transport 50,000 more barrels of crude oil per day. The expansion mainly aims at meeting the surge in demand in upper Midwest and Ontario. Additionally, the partnership’s 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.
With regard to its Natural Gas segment, Enbridge Energyaims to construct a cryogenic natural gas processing plant − Ajax − at its Anadarko gas gathering system near Wheeler, Texas, to handle the mounting pressure in Granite Wash play. The partnership expects the plant to be operational by early 2013. The processing plant will have a capacity of 150 MMcf/d and cost approximately $230 million.
These positives were supported by a Zacks #2 Rank, which is equivalent to a short-term Buy rating.
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 at this stage.
ENBRIDGE EGY PT (EEP): Free Stock Analysis Report
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