Enbridge Energy Earnings in Line with Ests - Analyst Blog

Enbridge Energy Partners L.P. EEP reported first-quarter 2014 adjusted earnings of 20 cents per unit, in line with the Zacks Consensus Estimate. The quarterly figure however deteriorated 4.8% from the year-earlier profit of 21 cents.

Total revenue in the quarter was up 22.8% year over year at $2,079.6 million from the year-ago level of $1,693 million. The reported figure also surpassed the Zacks Consensus Estimate of $1,832.0 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 jumped 33% to $205.2 million in the quarter from the year-earlier level of $154.3 million. The segment witnessed higher indexed transportation rates, in addition to higher deliveries primarily on the Lakehead and North Dakota systems. Further, contributions from growth projects that were commissioned during 2013, in particular Bakken Pipeline Expansion, Bakken Berthold Rail, Bakken Access and Lakehead system expansion projects, contributed to higher revenues. This was more than offset by higher operating and administrative expenses, higher pipeline integrity costs as well as increased property tax and workforce costs.

The partnership's volumes in the Liquids system rose 12.4% year over year to 2,456 thousand barrels per day.

Operating income of the Natural Gas segment decreased 67.2% year over year to $8.8 million. The decrease was primarily due to lower natural gas throughput and natural gas liquids production volumes on major systems owing to reduced dry gas drilling activity in its East Texas region, in addition to freeze-offs due to extended cold weather conditions in certain areas of the United States and the previously disclosed loss of a major customer on the Anadarko system.

During the quarter, Natural Gas throughput dropped to 2,067,000 million British thermal units per day (MMBtu/d) from the year-earlier level of 2,548,000 MMBtu/d.

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 term and lower risk. The partnership's business model will prove beneficial in assisting the initiative of its parent company – Enbridge Inc. ENB – to increase capacity in the 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 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 #4 (Sell). However, there are other stocks in the oil and gas sector – Unit Corp UNT and Boardwalk Pipeline Partners, LP BWP  – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.