Enbridge Energy Misses Consensus - Analyst Blog

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Enbridge Energy Partners L.P. ( EEP ) has reported fourth-quarter 2011 adjusted earnings of 32 cents per unit, which missed the Zacks Consensus Estimate of 35 cents. However, the quarterly figure showed an improvement of 10.3% from the year-earlier profit of 29 cents. Although the partnership posted lower-than-expected quarterly results, the year-over-year improvement was mainly attributable to robust organic growth programs in both Liquids and Natural Gas businesses.

Full-year 2011 adjusted earnings came in at $1.39 per unit, surpassing our expectation of $1.36. However, the reported figure dropped approximately 4% from the year-ago profit level of $1.45.

Total revenue in the quarter deteriorated 4.2% year over year to $2,076.7 million from the year-ago level of $2,168.2 million. The reported figure also missed the Zacks Consensus Estimate of $2,305 million.

For the full year, total revenue increased about 18% to $9,109.8 million from the year-ago level of $7,736.1 million.


Importantly, Enbridge increased its cash distribution rate by 3.6% year over year to 53.25 cents per unit ($2.13 per unit annualized) during 2011. Moreover, the partnership also maintained a 2−5% distribution growth through 2013.

Operational Performance

Operating income in the Liquids segment increased by 25.3% to $161.5 million in the quarter from the year-earlier level of $128.9 million. The segment experienced higher average daily volumes on all its major liquids systems and improved transportation rates on its Lakehead system.

The partnership's volumes in the Liquids system surged nearly 7% year over year to 2,189 thousand barrels per day in the reported quarter.

Operating income in the Natural Gas segment shot up more than 4% year over year to $51.4 million in the fourth quarter, primarily attributable to the overall production growth in the Granite Wash region. However, the results were partly tempered by contractual payments to producers for unprocessed natural gas. The partnership's East Texas system benefited from new assets placed in service to capture the growing natural gas production from the Haynesville shale play, whereas, its North Texas system was hit by lower natural gas volumes.

During the quarter, Natural Gas throughput improved 1.5% from the year-earlier period to 2,692,000 million British thermal units per day (MMBtu/d).

The Marketing segment registered an operating loss of $1.2 million versus operating income of $2.1 million reported in the prior-year period. The decline could be due 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.


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 focuses on the Granite Wash and Haynesville fronts.

The partnership is making efforts to grow in the Liquids segment as witnessed by the growth associated with its general partner Enbridge Inc. 's ( ENB ) initiatives to facilitate crude oil producers in two projects, namely the U.S. Gulf Coast and Eastern extension. 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 Energy aims 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 million cubic feet per day (MMcf/d) and cost approximately $230 million.

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 and is supported by a Zacks #3 Rank, which is equivalent to a short-term Hold rating.

ENBRIDGE EGY PT ( EEP ): Free Stock Analysis Report

ENTERPRISE PROD ( EPD ): Free Stock Analysis Report

KINDER MORG ENG ( KMP ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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