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Enbridge Lacks Luster in 4Q

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Enbridge Energy Partners L.P. (EEP - Free Report) reported fourth-quarter 2012 adjusted earnings of 18 cents per unit, missing the Zacks Consensus Estimate of 26 cents. The quarterly figure also deteriorated 43.8% from the year-earlier profit of 32 cents. The lower natural gas liquids price realization as well as throughput affected the partnership’s quarterly performance.

Full-year 2012 adjusted earnings came in at 99 cents per unit, missing our expectation of $1.05 and falling 28.8% from the year-ago profit level of $1.39.

Total revenue in the quarter was down 14.7% year over year at $1,771.2 million from the year-ago level of $2,076.7 million. The reported figure, however, beat the Zacks Consensus Estimate of $1,748.0 million.

For the full year, total revenue decreased 26.4% to $6,706.1 million from the year-ago level of $9,109.8 million but surpassed our expectation of $6,529.0 million.


Enbridge declared its 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 plunged 17.6% to $133.0 million in the quarter from the year-earlier level of $161.5 million. The segment witnessed lower average daily volumes, mainly due to lower volumes on its liquids pipeline systems and higher operating and administrative expenses, partially offset by higher revenues from an increase in index transportation rates as well as higher storage revenues from the partnership’s Cushing storage facilities.

The partnership’s volumes in the Liquids system dropped 3.3% year over year to 2,117 thousand barrels per day in the reported quarter.

Operating income of the Natural Gas segment decreased 16.5% year over year to $42.9 million in the fourth quarter, as a result of lower revenues resulting from lower natural gas and natural gas liquids prices. Further, lower volumes on its East Texas system and higher operating and administrative expenses suppressed the earnings.

During the quarter, Natural Gas throughput dropped to 2,564,000 million British thermal units per day (MMBtu/d) from the year-earlier level of 2,692,000 MMBtu/d.

The Marketing segment registered an operating loss of $1.4 million versus an operating loss of $1.2 million in the prior-year quarter. The weak natural gas price environment was 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 also depressed the results.


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 lower risk. The partnership’s business model will prove beneficial in assisting its parent company’s – Enbridge Inc. (ENB - Free Report) – 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 expediting 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.

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. Enbridge Energy carries a Zacks Rank #3, which is equivalent to a short-term Hold rating. However, there are other stocks in the oil and gas sector – Cabot Oil & Gas Corp (COG - Free Report) and Memorial Production Partners L.P. – which hold a Zacks Rank #1 (Strong Buy) and are expected to perform better.

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