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Enbridge's EPS Beats, Falls YoY

Zacks Equity Research

Enbridge Energy Partners L.P. (EEP) reported third-quarter 2012 adjusted earnings of 29 cents per unit, beating the Zacks Consensus Estimate of 27 cents. The quarterly figure, however, deteriorated 23.7% from the year-earlier profit of 38 cents. The lower natural gas liquids price realization as well as throughput affected the partnership’s quarterly performance.

Total revenue in the quarter was down 34.1% year over year to $1,564.3 million from the year-ago level of $2,372.2 million. The reported figure also missed the Zacks Consensus Estimate of $1,790.0 million.


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

Operational Performance

Operating income in the Liquids segment plunged 9.5% to $153.5 million in the quarter from the year-earlier level of $169.7 million. The segment witnessed lower average daily volumes, mainly due to scheduled and unscheduled upstream and refinery maintenance activities, which were partially offset by strong volumes across all its major liquids systems resulting from encouraging crude oil economics.

The partnership’s volumes in the Liquids system scaled up 1.1% year over year to 2,176 thousand barrels per day in the reported quarter.

Operating income of the Natural Gas segment increased nearly 13% year over year to $60.2 million in the third quarter, as a result of additional revenues realized from condensate stabilization services.

During the quarter, Natural Gas throughput dropped to 2,627,000 million British thermal units per day (MMBtu/d) from the year-earlier level of 2,841,000 MMBtu/d.

The Marketing segment registered an operating loss of $1.2 million versus an operating loss of $2.8 million in the prior-year period. The meek natural gas price environment is largely responsible for this lackluster performance. Again, the restricted scope of recognizing benefits from price differences between receipt and delivery locations where natural gas is bought and sold by the segment was also responsible for the decrease.


Enbridge Energy is fairly active in organic as well as inorganic growth ventures in liquids and natural gas segments. The company’s approach toward the natural gas segment is reflective of its focus on the Granite Wash and Haynesville fronts.

Enbridge Energy remains positive 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 low risk. The partnership’s business model will prove beneficial in assisting its parent company’s - Enbridge Inc. (ENB) - initiative of increasing capacity in the company's Lakehead System and the Eastern Access Projects with its commissioning scheduled for 2014. The partnership is undertaking various initiatives to grow in the Liquids segment as witnessed by pipeline expansions for augmenting movement of resources from the Bakken region.

On the flip side, Enbridge Energy recently reported an oil release from Line 14, which forms part of the partnership’s Lakehead System. The reason of the spill remains unclear.

The incident is likely to affect Enbridge Energy’s investment plans worth $3.2 billion in crude oil mainline pipeline system. The project was proposed to transfer crude from western Canada to the Eastern refineries as well as avoid obstacles in the U.S. Midwest. The initiative would comprise capacity addition to the company's Lakehead System and the Eastern Access Projects with its commissioning scheduled for 2014.

Further, 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. Our long-term Neutral recommendation remains unchanged at this stage and is supported by a Zacks #3 Rank, which is equivalent to a short-term Hold rating.

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