Mr. Mark Maki reports
ENBRIDGE ENERGY PARTNERS, L.P. REPORTS SECOND QUARTER 2017 RESULTS
Enbridge Inc.'s Enbridge Energy Partners LP has released its second-quarter 2017 financial results.
Q2 highlights:
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Second-quarter net income was $92.6-million, and cash provided by operating activities for the six-month period was $43.7-million.
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Second-quarter adjusted earnings before interest, taxes and depreciation (EBITDA) and distributable cash flow (DCF) were $396.6-million and $182.5-million, respectively.
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On June 1, 2017, the Bakken pipeline system was placed into service and started generating cash flow.
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On June 28, 2017, the partnership closed the sale of EEP's interest in the Midcoast gas gathering and processing business to Enbridge Energy Company Inc., marking the conclusion of the actions taken as part of the strategic review previously announced on April 28, 2017.
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Construction has begun to replace the U.S. portion of the Line 3 pipeline (U.S. L3R program) in Wisconsin. The U.S. L3R program is expected to come into service in the second half of 2019.
- Enbridge Energy Partners LP (EEP or the partnership) today reported second-quarter 2017 adjusted EBITDA and DCF of $396.6-million and $182.5-million, respectively.
Second-quarter results were in line with the partnership's expectations and guidance provided on April 28, 2017. Transportation volumes on the Lakehead system were up year over year, although tolls were reduced on April 1 to reflect the updated revenue requirement for 2017. Given the regulated-cost-of-service nature of the Lakehead system, these factors do not materially impact adjusted EBITDA or DCF for the quarter. Demand for transportation on the North Dakota system remains strong, although EBITDA for this business was down relative to last year as expected due to surcharges that rolled off in the first quarter of 2017. Other factors contributing to the year-over-year variance include: the sale of the Ozark pipeline system; lower contributions from rail facilities; continued weakness in the natural gas business that was divested on June 28, 2017; and the successfully completed Line 5 hydrostatic testing that was undertaken earlier in the year than originally anticipated, increasing operating and administrative costs by $10-million.
"With the restructuring actions and transition to a pure play liquids pipeline business now complete, we're pleased to be moving forward with a stronger balance sheet, healthier distribution coverage, limited external capital needs and a lower risk business over all," said Mark Maki, president for the partnership. "With the gas business removed, we're excited about the return to EEP's core business of liquids pipelines. The 'utility-like' value proposition offered by the partnership is expected to provide our investors with stable and predictable results from some of North America's most strategic liquids pipeline infrastructure."
In June, hydro testing was successfully completed on both the east and the west segments of the Line 5 crossing at the Straits of Mackinac. This testing was part of the company's continuing maintenance and modernization regimen for the Lakehead system. The lines were tested to 1,200 pounds per square inch, which is the same test pressure used when the pipes were installed and well above the normal operating pressure of 150 pounds per square inch. This test, coupled with the company's continuing maintenance and inspection programs, validates that the system can operate safely and reliably well into the future.
On June 1, 2017, the Bakken pipeline system was placed into service and started generating cash flow. Collectively, Enbridge Energy Company Inc. (EECI) and EEP hold an effective 27.6-per-cent ownership in the Bakken pipeline system, with EEP owning 25 per cent and EECI owning 75 per cent, respectively. Under the terms of the joint financing arrangement with EECI, EEP has a five-year option to acquire an additional 20-per-cent interest in EECI's Bakken pipeline system investment at net book value.
Demand for the North Dakota legacy system into Clearbrook remains strong, averaging over 215 thousand barrels per day for the quarter.
"The situation in North Dakota is playing out as we anticipated," said Mr. Maki. "Our North Dakota legacy system into Clearbook remains full given its strong strategic position as the lowest-cost system in the basin. In addition, second-quarter volumes into Cromer on the Bakken expansion pipeline exceeded contracted capacity."
Construction has begun on the U.S. L3R program in Wisconsin and will begin this summer on certain sections of Line 3 in Canada (Canadian L3R program) owned by Enbridge Income Partners LP (Enbridge). This project will enhance the reliability of EEP's Lakehead system and is a key execution priority for the partnership.
All required permitting is in place to proceed with construction of the U.S. L3R program in Wisconsin and for the Canadian L3R program scheduled for 2017. Permitting is also in place for construction in North Dakota. The remaining jurisdiction in which the regulatory process is still under way is in Minnesota where the Minnesota Department of Commerce is expected to release a final environmental impact statement in the third quarter of 2017. Based on the expected regulatory process and timeline, management's anticipated in-service date for the project is the second half of 2019.
Given the updated execution plan, the finalized cost estimate for the U.S. L3R program is now $2.9-billion (U.S.). The revised cost is approximately 12 per cent above the original estimate at the time of project sanctioning in 2014, and primarily reflects delays in the regulatory process, scope changes and route modifications as well as other changes that resulted from the extensive consultation process. The return that EEP will earn on the U.S. L3R program will not be negatively impacted by the higher capital costs. The return on and of U.S. L3R program capital will be recovered through the surcharge based on EEP's existing facilities surcharge mechanism.
"We're pleased that the regulatory process has progressed to a point where Enbridge and the partnership have the confidence to advance the construction of Line 3 in Wisconsin and in Canada," commented Mr. Maki. "This is an important project that will enhance the reliability of our Lakehead system for our customers in the [United States] and Canada."
Second-quarter 2017 performance overview
The partnership's key financial results for the three and six months ended June 30, 2017, compared with the same periods in 2016, were as shown in the attached table.
KEY FINANCIAL RESULTS
(in millions, except per-unit amounts)
Three months ended Six months ended
June 30, June 30,
2017 2016 2017 2016
Net income (1) $ 92.6 $ 83.7 $ 158.1 $ 163.7
Net income per unit
(basic and diluted) 0.21 0.08 0.36 0.15
Adjusted EBITDA (2) 396.6 489.3 810.7 955.5
Adjusted net income (1) 65.3 135.6 133.8 249.4
Adjusted net income per
unit (basic and diluted) $ 0.14 $ 0.22 $ 0.30 $ 0.39
(1) Net income and adjusted net income attributable to general and limited partner ownership interests
in Enbridge Partners
(2) Includes non-controlling interest
Adjusted net income and adjusted EBITDA for the three and six months ended June 30, 2017, as reported above, eliminate the effect of: (a) non-cash, mark-to-market net gains and losses; and (b) other adjustments.
Net income for the second quarter of 2017 increased $8.9-million over the same period from the prior year as a result of decreased losses from discontinued operations due to changes in non-cash mark-to-market derivative transactions, and reduced operating and administrative costs. Net income from continuing operations decreased $8.3-million over the same period from the prior year as a result of lower earnings, predominately due to lower tolls on the North Dakota system. This decrease was partially offset by higher volumes on the Lakehead system primarily as a result of non-recurrence of the wildfires in northeastern Alberta in the second quarter of 2016 and the sale of unnecessary pipe related to the Sandpiper project in the current period.
Adjusted net income of $65.3-million for the second quarter of 2017 was $70.3-million lower than the same period from the prior year. The decrease is attributable to discontinued operations, which decreased $27.6-million due to lower commodity prices, decreased processing and storage margins, reduced natural gas throughput, and reduced natural gas liquid production volumes. The decrease was partially offset by reduced operating and administrative costs due to cost savings in the 2017 period as a result of work force reductions, lower property taxes and other cost-reduction efforts. Continuing operations decreased due to the drivers previously discussed.
COMPARATIVE EARNINGS STATEMENT
(in millions, except per-unit amounts)
Three months ended Six months ended
June 30 June 30
2017 2016 2017 2016
Operating revenues $ 596.5 $621.3 $1,201.2 $1,251.0
Operating expenses
Environmental costs, net of recoveries 3.5 0.1 13.8 17.0
Operating and administrative 158.3 134.1 311.4 276.4
Power 66.4 59.7 140.9 132.5
Depreciation and amortization 108.3 104.9 217.1 206.3
Gain on sale of assets (51.5) - (62.1) -
Operating income 311.5 322.5 580.1 618.8
Interest expense, net (102.8) (93.3) (201.7) (197.8)
Allowance for equity used during construction 10.7 13.3 21.0 25.6
Other income 11.4 0.2 11.4 0.4
Income from continuing operations
before income tax expense 230.8 242.7 410.8 447.0
Income tax benefit (expense) 1.6 (2.0) 0.5 (3.6)
Income from continuing operations 232.4 240.7 411.3 443.4
(Loss) from discontinued operations, net of tax (35.4) (63.0) (56.8) (93.3)
Net income 197.0 177.7 354.5 350.1
Less net income attributable to
Non-controlling interest 90.6 70.3 158.9 139.1
Series 1 preferred unit distributions 6.5 22.5 29.0 45.0
Accretion of discount on Series 1 preferred units 7.3 1.2 8.5 2.3
Net income attributable to general and limited
partner ownership interests in Enbridge Energy
Partners LP $ 92.6 $ 83.7 $ 158.1 $ 163.7
Net income (loss) allocable to common units
and i-units
Income from continuing operations $ 104.9 $ 73.7 $ 172.1 $ 118.8
(Loss) from discontinued operations (24.2) (46.0) (38.0) (67.0)
Net income allocable to common units and i-units $ 80.7 $ 27.7 $ 134.1 $ 51.8
Net income (loss) per common unit
and i-unit (basic and diluted)
Income from continuing operations $ 0.27 $ 0.21 $ 0.46 $ 0.33
(Loss) from discontinued operations (0.06) (0.13) (0.10) (0.18)
Net income per common unit and i-unit $ 0.21 $ 0.08 $ 0.36 $ 0.15
Comparison of quarterly results
Attached are explanations for significant changes in the partnership's financial results, comparing the three and six months ended June 30, 2017, with the same period of 2016. The comparison refers to operating income and adjusted operating income. Adjusted operating income excludes the effect of certain non-cash and other items that the partnership believes are not indicative of its core operating results.
OPERATING INCOME (LOSS)
(in millions)
Three months ended Six months ended
June 30 June 30
2017 2016 2017 2016
Liquids $ 316.3 $324.5 $ 587.5 $625.9
Other (4.8) (2.0) (7.4) (7.1)
Operating income $ 311.5 $322.5 $ 580.1 $618.8
ADJUSTED OPERATING INCOME (LOSS)
(in millions)
Three months ended Six months ended
June 30 June 30
2017 2016 2017 2016
Liquids $ 268.3 $330.8 $ 545.7 $641.3
Other (4.8) (2.0) (7.4) (7.1)
Adjusted operating income $ 263.5 $328.8 $ 538.3 $634.2
Liquids
Second-quarter operating results for the liquids segment decreased $8.2-million to $316.3-million over the comparable period in 2016. Lower operating results were due to several factors such as lower average rates and reduced short-haul transportation volumes destined for the Berthold rail loading facility on the North Dakota system. North Dakota rates decreased due to the expiration of the Phase 5 and Phase 6 expansion surcharges, resulting in a $7.3-million decrease in operating revenue period over period. Operating results were further reduced due to the Ozark pipeline system sale during the first quarter of 2017. Offsetting the decrease in operating results was increased operating revenue on the Lakehead system primarily as a result of non-recurrence of the wildfires in northeastern Alberta in the second quarter of 2016 and a gain on the sale of pipe from the Sandpiper project of $51.5-million. Operating and administrative costs were higher period over period due to Line 5 hydrostatic testing costs of $9.8-million and higher property taxes of $4-million.
Second-quarter adjusted operating income for the liquids segment decreased $62.5-million to $268.3-million over the comparable period in 2016 due to the same operating factors described above, which exclude the impact of gains on the sale of assets, and the impact of non-cash, mark-to market gains and losses.
Discontinued operations
Second-quarter losses from discontinued operations decreased $27.6-million over the comparable period in 2016. The decrease was primarily the result of a favourable increase in non-cash mark-to-market gains in the current period of $55.8-million when compared with the same period in 2016, lower operating and administrative expenses due to cost savings as a result of work force reductions, lower property taxes, and other cost-reduction efforts. Also contributing to the decrease in loss from discontinued operations was the absence of an asset impairment charge of $10.6-million on certain trucking assets in 2016. Two thousand seventeen results were unfavourably impacted by lower commodity prices, net of hedges, and lower processing and storage margins.
Second-quarter adjusted loss from discontinued operations increased $22-million over the comparable period in 2016. The increase was predominantly attributable to a reduction in the value that the partnership receives for its natural gas liquids due to lower hedged prices, and lower natural gas and NGL system volumes.
Conference call details
The partnership will host a joint conference call and webcast at 9 a.m. ET (7 a.m. MT) on Aug. 3, 2017, with Enbridge Inc., Enbridge Income Fund Holdings Inc. and Spectra Energy Partners LP to provide an enterprise-wide business update and review 2017 second-quarter financial results. Analysts, members of the media and other interested parties can access the call toll-free at 877-930-8043 or outside North America at 253-336-7522 using the access code of 51403910 followed by the number sign. The call will be audio webcast live. A webcast replay and podcast will be available approximately two hours after the conclusion of the event, and a transcript will be posted to the website within approximately 24 hours. An audio replay will be available for seven days after the call toll-free at 855-859-2056 or outside North America at 404-537-3406 using the replay passcode 51403910 followed by the number sign.
About Enbridge Energy Partners LP
Enbridge Energy Partners owns and operates a diversified portfolio of crude oil 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 23 per cent of total U.S. oil imports.
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