Mr. Mark Maki reports
ENBRIDGE ENERGY PARTNERS LP DECLARES DISTRIBUTION INCREASE AND REPORTS EARNINGS FOR SECOND QUARTER 2014
The board of directors of Enbridge Inc. affiliate Enbridge Energy Partners LP's general partner has declared a cash distribution of 55.5 cents per unit, or $2.22 per unit on an annualized basis, representing a 2.1-per-cent increase over the prior quarter. The distribution will be paid on Aug. 14, 2014, to unitholders of record as of the close of business on Aug. 7, 2014.
Highlights:
- Record-setting Lakehead and North Dakota system deliveries;
- Announced 2.1-per-cent distribution increase;
- $2.2- per-unit annualized cash distribution rate;
- Reports adjusted earnings before interest, taxes, depreciation and amortization for the second quarter of $362.3-million;
- Eastern Access, Line 6B, replacement project's 160-mile segment entered service May 1;
- Announced equity restructure with general partner to enhance partnership's prospective cost of capital;
- Executed drop-down sale to Midcoast Energy Partners LP for $350-million.
"We are pleased with the partnership's second quarter performance, particularly with the record deliveries on our Lakehead and North Dakota liquids pipeline systems. With robust crude oil supply growth in Western Canada and the Bakken formation, we expect deliveries on our Lakehead system to further increase and deliveries on our North Dakota system to remain strong in the second half of 2014. Turning to project execution, we placed a large component of our Eastern Access program into service on May 1, representing approximately $1.5-billion of capital. Looking forward, the remaining 50-mile segment of the Line 6B replacement to Sarnia, Ont., in addition to the first phase of our Line 61 Mainline expansion, are expected to begin service in the second half of this year. We expect our organic growth projects will deliver highly certain earnings and cash flows and our financial performance and distribution coverage to strengthen in the second half of 2014 due to the incremental project contributions," said Mark Maki, president for the partnership.
"A key development in the second quarter was the announcement of an equity restructure transaction whereby our general partner agreed to reduce the partnership's prospective maximum incentive distribution tier. The equity restructure is expected to enhance the economics of the partnership's investment projects and to increase cash flow available for distribution to our public unitholders, in addition to improving the partnership's prospective cost of capital. This once again demonstrates the strategic alignment and support from our sponsor, Enbridge Inc. As it relates to our financing plan, we completed our first drop-down sale of additional ownership interests in our jointly owned natural gas business to MEP since MEP's IPO. The MEP drop-down strategy is an integral component of our financing program as we expect it will provide significant funding for EEP's attractive liquids pipelines growth projects and will substantially satisfy our equity capital requirements," noted Mr. Maki.
The partnership's key financial results for the three and six months ended June 30, 2014, compared with the same periods in 2013, were as set out in the attached financial results table.
FINANCIAL RESULTS
(dollars in millions, except per-unit amounts)
Three months ended Six months ended
June 30, June 30,
2014 2013 2014 2013
Net income (1) $ 43.9 $ 89.9 $ 137.2 $ 6.6
Net income (loss) per unit 0.02 0.18 0.19 (0.18)
Adjusted EBITDA (2) 362.3 284.6 701.0 565.5
Adjusted net income (1) 107.1 74.7 210.0 170.4
Adjusted net income per unit 0.21 0.13 0.41 0.34
(1) Net income and adjusted net income attributable to general and limited
partner ownership interests in Enbridge Energy Partners.
(2) Includes non-controlling interest.
Adjusted net income for the three-month period ended June 30, 2014, as reported herein, eliminates the impact of: (a) additional environmental costs, net of insurance recoveries, associated with the Line 6B incident; and (b) non-cash, mark-to-market net gains and losses and other adjustments.
Adjusted net income of $107.1-million for the second quarter of 2014 was $32.4-million higher than the same period from the prior year. Higher earnings were attributable to higher transportation rates, deliveries and associated revenues from the liquids pipeline segment, partially offset by lower gross margin in the natural gas segment due to lower natural gas throughput and natural gas liquids production on the natural gas systems.
During the second quarter, the partnership attributed approximately $22.5-million of earnings to its holders of Series 1 preferred units. This amount is deducted from net income to arrive at the amount of net income attributable to the general and limited partners. Preferred distributions are accrued at an annual rate of 7.5 per cent through June 30, 2015. The partnership may defer payment of those accrued amounts until the earlier of June 1, 2019, or the date on which the partnership redeems the units.
COMPARATIVE EARNINGS STATEMENT
(dollars in millions except per-unit amounts)
Three months ended Six months ended
June 30, June 30,
2014 2013 2014 2013
Operating revenue $ 1,871.1 $ 1,672.7 $ 3,950.7 $ 3,365.7
Operating expenses
Cost of natural gas 1,259.8 1,115.5 2,748.5 2,306.9
Environmental costs, net of
recoveries 38.2 5.2 43.2 183.7
Operating and administrative 224.6 218.0 441.6 412.9
Power 54.2 29.2 104.6 62.8
Depreciation and amortization 113.4 95.8 217.2 188.0
Operating income 180.9 209.0 395.6 211.4
Interest expense 80.2 79.5 157.1 155.9
Allowance for equity used during
construction 12.6 8.1 33.3 15.9
Other income 1.2 0.3 0.4 0.6
Income before income tax expense 114.5 137.9 272.2 72.0
Income tax expense 2.0 14.2 4.0 16.0
Net income 112.5 123.7 268.2 56.0
Less: net income attributable to
Non-controlling interest 42.4 18.4 78.7 34.0
Series 1 preferred unit
distributions 22.5 13.1 45.0 13.1
Accretion of discount on Series 1
preferred units 3.7 2.3 7.3 2.3
Net income attributable to general
and limited partner ownership
interests in Enbridge Energy
Partners $ 43.9 $ 89.9 $ 137.2 $ 6.6
Less: allocations to general
partner 38.9 33.2 73.3 62.8
Net income (loss) allocable to
limited partners $ 5.0 $ 56.7 $ 63.9 $ (56.2)
Net income (loss) per limited
partner unit (basic) $ 0.02 $ 0.18 $ 0.19 $ (0.18)
Net income (loss) per limited
partner unit (diluted) $ 0.02 $ 0.18 $ 0.19 $ (0.18)
Comparison of quarterly results
Following are explanations for significant changes in the partnership's financial results, comparing the three- and six-month periods ended June 30, 2014, with the same periods of 2013. The comparison refers to adjusted operating income, which excludes the effect of non-cash and non-recurring items.
Liquids
Second quarter adjusted operating income for the liquids segment increased $64.9-million to $232.8-million from $167.9-million for the comparable period in 2013. Higher revenues in the second quarter were attributable to an increase in transportation rates and higher deliveries on both the Lakehead and North Dakota systems. Collectively, total liquids system deliveries increased approximately 29 per cent over the same period from prior year due to robust crude oil supply growth in Western Canada and the Bakken formation, complemented by Enbridge and the partnership's pipeline expansion projects entering service. On May 1, 2014, the LP placed into service a large component of its Eastern Access program, specifically the 160-mile segment of its Line 6B replacement project from Griffith, Ind., to Stockbridge, Mich., which contributed to the increase in revenues during the quarter. Higher revenues were partially offset by increased operating and administrative expenses.
Natural gas
Second quarter adjusted operating income for the natural gas segment was $8-million lower compared with the same period of 2013. The decrease in adjusted operating income was predominantly attributable to lower natural gas throughput and natural gas liquid production volumes on the LP's major systems. The decrease in volumes on the LP's systems was primarily attributable to reduced drilling activity in the Anadarko region, coupled with reduced dry gas drilling activity and delayed well completions in the LP's east Texas region. Lower segment gross margin was partially offset by lower operating and administrative expenses.
Partnership financing
On June 19, 2014, Enbridge Energy Partners announced that it had entered into a purchase and sale agreement with Midcoast Energy Partners to sell an additional 12.6-per-cent interest in its subsidiary, Midcoast Operating LP, for $350-million in cash proceeds. This transaction closed on July 1, 2014.
Enbridge Energy Management LLC distribution
Enbridge Energy Management today declared a distribution of 55.5 cents per share payable on Aug. 14, 2014, to shareholders of record on Aug. 7, 2014. 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 Aug. 5, 2014. Enbridge Management's sole asset is its approximate 16.5-per-cent limited partner interest in Enbridge Partners. Enbridge Management's results of operations, financial condition and cash flows depend on the results of operations, financial condition and cash flows of Enbridge Partners, which are summarized herein for the second quarter of 2014.
Management review of quarterly results
Enbridge Partners will review its financial results for the quarter ended June 30, 2014, in a live Internet presentation, on July 31, 2014, commencing at 5 p.m. Eastern Time. Interested parties may watch the live webcast. A replay will be available shortly afterward. Presentation slides and condensed unaudited financial statements will also be available on the partnership's website.
The audio portion of the live presentation will be accessible by telephone at 866-515-2907 (passcode 42846494) and can be replayed until Aug. 14, 2014, by calling 888-286-8010 (passcode 18108183). An audio replay will also be available for download in MP3 format.
About Enbridge Energy Partners
Enbridge Energy Partners owns and operates a diversified portfolio of crude oil and, through its interests in Midcoast Energy Partners, natural gas transportation systems in the United States. Its principal crude oil system is the largest pipeline transporter of growing oil production from Western Canada and the North Dakota Bakken formation. The system's deliveries to refining centres and connected carriers in the United States account for approximately 17 per cent of total U.S. oil imports. Midcoast Partners' natural-gas-gathering, treating, processing and transmission assets, which are principally located onshore in the active U.S. mid-continent and gulf coast areas, deliver approximately 2.5 billion cubic feet of natural gas daily. Enbridge Partners is recognized by Forbes as one of the 100 most trustworthy companies in America.
About Enbridge Energy Management
Enbridge Energy Management manages the business and affairs of Enbridge Partners, and its sole asset is an approximate 16.5-per-cent limited partner interest in Enbridge Partners. Enbridge Energy Company Inc., an indirect wholly owned subsidiary of Enbridge Inc. of Calgary, Alta., is the general partner of Enbridge Partners and holds an approximate 34-per-cent interest in Enbridge Partners, together with all of the outstanding preferred interests in Enbridge Partners.
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