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Enbridge Energy Partners L.P. (EEP - Analyst Report) reported first-quarter 2013 adjusted earnings of 21 cents per unit, beating the Zacks Consensus Estimate of 18 cents. The quarterly figure however deteriorated 25% from the year-earlier profit of 28 cents.

Total revenue in the quarter was down almost 7% year over year at $1,693.0 million from the year-ago level of $1,819.5 million. The reported figure also came below the Zacks Consensus Estimate of $1,745.0 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 fell 3% to $154.3 million in the quarter from the year-earlier level of $159.0 million. The segment witnessed higher indexed transportation rates, in addition to higher storage revenues from the Partnership's Cushing storage facilities. This was more than offset by lower deliveries primarily on liquids North Dakota system and higher operating and administrative expenses.

The partnership’s volumes in the Liquids system dropped 5.7% year over year to 2,186 thousand barrels per day in the reported quarter.

Operating income of the Natural Gas segment decreased 49.7% year over year to $26.4 million. The decrease was primarily due to lower NGL prices, in addition to ethane rejection at some plants predominantly situated in the Midcontinent.

During the quarter, Natural Gas throughput dropped to 2,548,000 million British thermal units per day (MMBtu/d) from the year-earlier level of 2,576,000 MMBtu/d.

The Marketing segment registered an operating income of $0.4 million versus an operating loss of $3.2 million in the prior-year quarter. The increase was primarily due to non-cash charges that were recorded to reduce the cost basis of natural gas inventory to net realizable value. Performance also was boosted by the expiration of natural gas transportation demand fees on a third party pipeline.

Outlook

Enbridge Energy remains optimistic 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 lower risk. The partnership’s business model will prove beneficial in assisting the initiative of its parent company – Enbridge Inc. (ENB - Snapshot Report) –  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 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 #5, which is equivalent to a short-term Strong Sell rating. However, there are other stocks in the oil and gas sector – Tesco Corporation (TESO - Snapshot Report) and EPL Oil & Gas, Inc. – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.
 


 

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