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Enbridge Energy Partners Declares Cash Distribution and Reports Strong Earnings for Second Quarter 2009
Marketwire
Jul 24, 2009
HOUSTON, TX -- (Marketwire) -- 07/24/09 -- Enbridge Energy Partners, L.P. (NYSE: EEP) ("Enbridge Partners" or "the Partnership") today declared a cash distribution of $0.99 per unit payable August 14, 2009 to unitholders of record on August 6, 2009 (the ex-dividend date will be August 4, 2009). The Partnership's key financial results for the second quarter of 2009, compared to the same period in 2008, were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
(unaudited, dollars in millions except
per unit amounts) 2009 2008 2009 2008
-------- -------- -------- --------
Net income $ 117.5 $ 58.8 $ 186.1 $ 161.9
Net income per unit 0.88 0.49 1.37 1.48
-------- -------- -------- --------
Adjusted EBITDA 233.1 211.3 421.3 378.6
Adjusted net income 100.6 102.6 171.4 192.0
Adjusted net income per unit 0.74 0.94 1.24 1.79
-------- -------- -------- --------
Adjusted net income reported above eliminates the impact of non-cash, mark-to-market, gains and losses, which arise from changes in the fair value of certain of the Partnership's derivative instruments that do not qualify for hedge accounting treatment under applicable accounting standards. Also, removed from 2009 adjusted earnings is the impact of unrecorded prior period revenues recognized during the first quarter that affected the Partnership's liquids operations (see Non-GAAP Reconciliations section below).
Terrance L. McGill, president of the Partnership's management company and of its general partner, commented, "We are very pleased with our second quarter results and the significant progress we have made on several fronts. Our adjusted net income of $100.6 million for the quarter was the second highest in the Partnership's history. These strong results, under the current circumstances, were mainly due to the contribution made by the Southern Access Expansion project, our very proactive cost savings initiatives program and improved earnings in our natural gas segment."
McGill added, "We have made very good progress in hedging the Partnership's commodity exposure in our natural gas segment and as a result our estimated commodity exposure is hedged 95 percent and 75 percent for 2009 and 2010 respectively. Finally, the Partnership continues to have a very strong liquidity position with $1.6 billion of available liquidity as of the end of June."
For the second quarter of 2009, the Partnership reported progress on its major internal growth initiatives, as follows:
-- Southern Access: Construction of the 42-inch diameter Southern Access
Expansion Stage 2 crude oil pipeline between Delavan, Wis., and Flanagan,
Ill., which began in June 2008, was completed on schedule in April 2009.
The associated surcharge to the Lakehead system toll is already in place,
thus generating significant additional cash flows for the Partnership. On
May 1, 2009 we purchased a portion of a crude oil pipeline system from a
wholly-owned subsidiary of our general partner. The portion of the system,
known as "Spearhead North," includes approximately seven storage tanks and
75 miles of pipeline that our general partner reversed to provide
northbound service from Flanagan, Ill. to Griffith, Ind. The acquisition of
Spearhead North will serve to complement the existing operations of our
Lakehead system, as our newly construction Southern Access pipeline ends in
Flanagan where it connects to Spearhead North.
-- Alberta Clipper: On July 20, 2009, we announced a joint funding
arrangement with our general partner to participate in financing of the
United States portion of our $1.2 billion Alberta Clipper project. The
joint funding arrangement includes an equity and a debt investment by our
general partner to fund two-thirds of the Alberta Clipper project. The
Partnership will fund one-third of the equity and debt of the project.
Under the terms of the joint funding arrangement, Enbridge Inc., through
our general partner, will be entitled to two-thirds of, and we will be
entitled to one-third of, the earnings and cash flow generated from the
project.
Detailed engineering, procurement and construction planning activities are
proceeding on schedule for this project. This new pipeline will provide
450,000 bpd of heavy crude oil capacity between Hardisty, Alberta, and
Superior, Wis., starting in mid 2010 and will be expandable to 800,000 bpd.
The commercial structure for this expansion is a cost-of-service based
surcharge that will be added to the existing transportation rates on the
Lakehead system.
-- North Dakota: Construction is underway on the $150 million Phase VI
expansion of the North Dakota System to add 51,000 bpd of crude oil
delivery capacity by early 2010 to the 110,000 bpd that is currently
available. The commercial structure for this expansion is a cost-of-service
based surcharge that will be added to the existing transportation rates.
The proposed tolling methodology is similar to the structure being used on
the Phase V expansion project and was approved by the FERC in October 2008.
COMPARATIVE EARNINGS STATEMENT
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
(unaudited, dollars in millions
except per unit amounts) 2009 2008 2009 2008
---------- ---------- --------- ----------
Operating revenue $ 1,310.2 $ 2,932.2 $ 2,769.9 $ 5,367.5
Operating expenses:
Cost of natural gas 895.0 2,614.3 1,997.1 4,713.1
Operating and administrative 138.1 121.8 275.8 238.5
Power 29.8 31.3 63.2 69.6
Depreciation and
amortization 70.1 55.3 134.2 104.5
---------- ---------- --------- ----------
Operating income 177.2 109.5 299.6 241.8
Interest expense 57.9 51.4 109.2 79.0
Other income (expense) 0.3 2.5 (0.2) 2.2
---------- ---------- --------- ----------
Income before income tax
expense 119.6 60.6 190.2 165.0
Income tax expense 2.1 1.8 4.1 3.1
---------- ---------- --------- ----------
Net income $ 117.5 $ 58.8 $ 186.1 $ 161.9
Allocations to General Partner 14.6 11.4 28.2 22.4
---------- ---------- --------- ----------
Net income allocable to Limited
Partners $ 102.9 $ 47.4 $ 157.9 $ 139.5
Weighted average limited
partner units (millions) 116.1 96.3 115.6 94.4
---------- ---------- --------- ----------
Net income per limited partner
unit (dollars) $ 0.88 $ 0.49 $ 1.37 $ 1.48
---------- ---------- --------- ----------
COMPARISON OF QUARTERLY RESULTS
Following are explanations for significant changes in the Partnership's financial results, comparing the second quarter of 2009 with the second quarter of 2008. The comparison refers to adjusted operating income, which excludes the impacts of noncash derivative gains and losses, and unrecorded revenues (see Non-GAAP Reconciliations section below).
Three Months Ended Six Months Ended
Adjusted Operating Income June 30, June 30,
---------------- ----------------
(unaudited, dollars in millions) 2009 2008 2009 2008
------- ------- ------- -------
Liquids $ 104.8 $ 89.7 $ 193.2 $ 151.3
Natural Gas 52.9 60.5 80.1 105.9
Marketing 6.2 4.4 17.0 17.8
Corporate (1.2) (1.1) (2.1) (3.1)
------- ------- ------- -------
Adjusted operating income $ 162.7 $ 153.5 $ 288.2 $ 271.9
------- ------- ------- -------
Liquids -- Second quarter adjusted operating income for the Liquids segment increased to $104.8 million. Operating revenue increased by $39.4 million, primarily driven by transportation rate increases related to the annual index rate increases on all three of our major systems that became effective on July 1, 2008. Additionally, effective April 1, 2009, we increased our transportation rates in connection with the completion of Stage 2 of our Southern Access Expansion.
Volumes increased, as shown in the table below, due to an increase in crude oil supplies from upstream production facilities of the Alberta Oil Sands.
Three Months Six Months
Liquids Systems Deliveries Ended June 30, Ended June 30,
--------------- ---------------
(thousand barrels per day) 2009 2008 2009 2008
------- ------- ------- -------
Lakehead 1,606 1,557 1,612 1,597
Mid-Continent 238 237 239 244
North Dakota 115 113 115 110
------- ------- ------- -------
Total 1,959 1,907 1,966 1,951
------- ------- ------- -------
These gains were partially offset by a $7.9 million increase in depreciation associated with the new assets placed in service over the past year. Operating costs increased by $17.9 million, mainly due to increased workforce costs and less favorable oil measurement adjustments. Power costs decreased by $1.5 million due to a favorable decline in utility rates.
Natural Gas -- Quarterly adjusted operating income for the Natural Gas segment decreased $7.6 million, to $52.9 million. Operating income for the quarter benefited from higher average volumes associated with the completion of our East Texas natural gas system expansion and extension, referred to as the Clarity Project. Quarterly operating income was negatively impacted by reduced margins resulting from the overall decrease of natural gas and natural gas liquids prices as compared with the second quarter of 2008. Partially offsetting the margin declines was a $1.1 million reduction in operating costs primarily resulting from our enhanced efforts to control and monitor costs. Depreciation expense increased by $6.9 million as a result of the capital projects completed and placed into service in the last half of 2008.
Three Months Ended Six Months Ended
Natural Gas Throughput June 30, June 30,
------------------- -------------------
(MMBtu per day) 2009 2008 2009 2008
--------- --------- --------- ---------
East Texas 1,567,000 1,454,000 1,599,000 1,425,000
Anadarko 594,000 647,000 596,000 631,000
North Texas 388,000 392,000 398,000 380,000
--------- --------- --------- ---------
Total 2,549,000 2,493,000 2,593,000 2,436,000
--------- --------- --------- ---------
Marketing -- The Marketing segment reported adjusted operating income of $6.2 million, an increase of $1.8 million from the $4.4 million of adjusted operating income in the same period of 2008. The increase was primarily due to enhanced flexibility around our existing pipeline and storage assets.
Partnership Financing -- Interest expense increased by $6.5 million, to $57.9 million, for the second quarter. The increase is due primarily to the approximate $0.2 billion increase in average debt outstanding associated with the financing of the Partnership's expansion projects and higher weighted average interest rates. Interest capitalized on construction work in progress totaled $5.5 million for the quarter, which was $0.4 million lower due to project stages that were completed and placed in service prior to this quarter. Additional partners' capital was also raised for the expansion projects during the prior 12 months, which accounts for most of the increase in weighted average limited partner units outstanding to 116.1 million from 96.3 million.
ENBRIDGE ENERGY MANAGEMENT DISTRIBUTION
Enbridge Energy Management, L.L.C. (NYSE: EEQ) declared a distribution of $0.99 per share payable August 14, 2009 to shareholders of record on August 6, 2009. The distribution will be paid in the form of additional shares of Enbridge Energy Management valued at the average closing price of the shares for the 10 trading days prior to the ex-dividend date on August 4, 2009.
MANAGEMENT REVIEW OF QUARTERLY RESULTS
Enbridge Partners will review its quarterly financial results and business outlook in an Internet presentation, commencing at 10 a.m. Eastern Time on Monday, July 27, 2009. Interested parties may watch the live webcast at the link provided below. A replay will be available shortly afterward. Presentation slides and condensed unaudited financial statements will also be available at the link below.
EEP Earnings Release: www.enbridgepartners.com/Q
Alternate Webcast Link: http://www.investorcalendar.com/IC/CEPage.asp?ID=147172
The audio portion of the presentation will be accessible by telephone at (877) 407-0782 and can be replayed until August 10, 2009 by calling (877) 660-6853 and entering Conference Account: 286, ID: 327593. An audio replay will also be available for download in MP3 format from either of the website addresses above.
NON-GAAP RECONCILIATIONS
Adjusted net income and adjusted operating income for the principal business segments are provided to illustrate trends in income excluding derivative fair value losses and gains that affect earnings but do not impact cash flow. These non-cash losses and gains result from marking to market certain financial derivatives used by the Partnership for hedging purposes that do not qualify for hedge accounting treatment as prescribed by SFAS 133, "Accounting for Derivative Instruments and Hedging Activities."
Three Months Ended Six Months Ended
Adjusted Earnings June 30, June 30,
---------------- ----------------
(unaudited, dollars in millions except
per unit amounts) 2009 2008 2009 2008
------- ------- ------- -------
Net income $ 117.5 $ 58.8 $ 186.1 $ 161.9
Unrecorded revenues -- -- (13.8) --
Noncash derivative fair value (gains)
losses
-Natural Gas 3.0 22.0 13.0 (4.8)
-Marketing (17.5) 22.0 (10.6) 34.9
-Corporate* (2.4) (0.2) (3.3) --
------- ------- ------- -------
Adjusted net income 100.6 102.6 171.4 192.0
Allocations to General Partner (14.3) (12.3) (27.9) (23.0)
------- ------- ------- -------
Adjusted net income allocable to
Limited Partners 86.3 90.3 143.5 169.0
Weighted average units (millions) 116.1 96.3 115.6 94.4
------- ------- ------- -------
Adjusted net income per unit (dollars) $ 0.74 $ 0.94 $ 1.24 $ 1.79
------- ------- ------- -------
* Noncash derivative fair value gains (losses) for the six months ended
June 30, 2009 consisted of realized non-cash derivative gains of $0.9
million from the settlement of interest rate swaps.
Three Months Ended Six Months Ended
Liquids June 30, June 30,
------------------ ------------------
(unaudited, dollars in millions) 2009 2008 2009 2008
-------- -------- -------- --------
Operating income $ 104.8 $ 89.7 $ 207.0 $ 151.3
Unrecorded revenues -- -- (13.8) --
-------- -------- -------- --------
Adjusted operating income $ 104.8 $ 89.7 $ 193.2 $ 151.3
-------- -------- -------- --------
Three Months Ended Six Months Ended
Natural Gas June 30, June 30,
------------------ ------------------
(unaudited, dollars in millions) 2009 2008 2009 2008
-------- -------- -------- --------
Operating income $ 49.9 $ 38.5 $ 67.1 $ 110.7
Noncash derivative fair value
losses (gains) 3.0 22.0 13.0 (4.8)
-------- -------- -------- --------
Adjusted operating income $ 52.9 $ 60.5 $ 80.1 $ 105.9
-------- -------- -------- --------
Three Months Ended Six Months Ended
Marketing June 30, June 30,
------------------ ------------------
(unaudited, dollars in millions) 2009 2008 2009 2008
-------- -------- -------- --------
Operating income (loss) $ 23.7 $ (17.6) $ 27.6 $ (17.1)
Noncash derivative fair value
losses (gains) (17.5) 22.0 (10.6) 34.9
-------- -------- -------- --------
Adjusted operating income $ 6.2 $ 4.4 $ 17.0 $ 17.8
-------- -------- -------- --------
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is used as a supplemental financial measurement to assess liquidity and the ability to generate cash sufficient to pay interest costs and make cash distributions to unit holders. The following reconciliation of net cash provided by operating activities to adjusted EBITDA is provided because EBITDA is not a financial measure recognized under generally accepted accounting principles.
Three Months Ended Six Months Ended
Adjusted EBITDA June 30, June 30,
------------------ ------------------
(unaudited, dollars in millions) 2009 2008 2009 2008
-------- -------- -------- --------
Net cash provided by operating
activities $ 84.2 $ (2.5) $ 359.4 $ 273.7
Unrecorded revenues -- -- (13.8) --
Changes in operating assets and
liabilities, net of cash acquired 95.4 143.7 (25.8) 11.6
Interest expense (excluding MTM
adjustments) 60.3 51.6 111.6 79.0
Income tax expense 2.1 1.8 4.1 3.1
Settlement of interest rate
swaps/treasury locks -- 22.1 0.7 22.1
Other (8.9) (5.4) (14.9) (10.9)
-------- -------- -------- --------
Adjusted EBITDA $ 233.1 $ 211.3 $ 421.3 $ 378.6
-------- -------- -------- --------
LEGAL NOTICE
This news release includes forward-looking statements and projections, which are statements that do not relate strictly to historical or current facts. These statements frequently use the following words, variations thereon or comparable terminology: "anticipate," "believe," "continue," "estimate," "expect," "forecast," "intend," "may," "plan," "position," "projection," "strategy" or "will." Forward-looking statements involve risks, uncertainties and assumptions and are not guarantees of performance. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond Enbridge Partners' ability to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking statements include: (1) changes in the demand for or the supply of, forecast data for, and price trends related to crude oil, liquid petroleum, natural gas and NGLs, including the rate of development of the Alberta Oil Sands; (2) Enbridge Partners' ability to successfully complete and finance its capital expansion projects; (3) the effects of competition, in particular, by other pipeline systems; (4) shut-downs or cutbacks at facilities of Enbridge Partners or refineries, petrochemical plants, utilities or other businesses for which Enbridge Partners transports products or to whom Enbridge Partners sells products; (5) hazards and operating risks that may not be covered fully by insurance; (6) changes in or challenges to Enbridge Partners' tariff rates; (7) changes in laws or regulations to which Enbridge Partners is subject, including compliance with environmental and operational safety regulations that may increase costs of system integrity testing and maintenance.
Reference should also be made to Enbridge Partners' filings with the U.S. Securities and Exchange Commission; including its Annual Report on Form 10-K for the most recently completed fiscal year and its subsequently filed Quarterly Reports on Form 10-Q, for additional factors that may affect results. These filings are available to the public over the Internet at the SEC's web site (www.sec.gov) and at the Partnership's web site.
PARTNERSHIP INFORMATION
Enbridge Energy Partners, L.P. (www.enbridgepartners.com) owns and operates a diversified portfolio of crude oil and natural gas transportation systems in the United States. Its principal crude oil system is the largest transporter of growing oil production from western Canada. The system's deliveries to refining centers and connected carriers in the United States account for approximately 11 percent of total U.S. oil imports; while deliveries to Ontario, Canada satisfy approximately 60 percent of refinery demand in that region. The Partnership's natural gas gathering, treating, processing and transmission assets, which are principally located onshore in the active U.S. Mid-Continent and Gulf Coast area, deliver approximately 3 billion cubic feet of natural gas daily.
Enbridge Energy Management, L.L.C. (www.enbridgemanagement.com) manages the business and affairs of the Partnership and its sole asset is an approximate 13 percent interest in the Partnership. Enbridge Energy Company, Inc., an indirect wholly owned subsidiary of Enbridge Inc. of Calgary, Alberta, (NYSE: ENB) (TSX: ENB) (www.enbridge.com) is the general partner and holds an approximate 27 percent interest in the Partnership.
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