EEP 15.58  1.02%
EEQ 14.89  0.73%
ENB 41.03  0.51%

Quarterly Earnings

August 2, 2017

Enbridge Energy Partners, L.P. (NYSE:EEP) (EEP or the Partnership) today reported second quarter 2017 adjusted EBITDA and DCF of $396.6 million and $182.5 million, respectively.

Q2 2017 HIGHLIGHTS

  • Second quarter net income was $92.6 million and cash provided by operating activities for the six month period was $43.7 million
  • Second quarter adjusted earnings before interest, taxes and depreciation (EBITDA) and distributable cash flow (DCF) were $396.6 million and $182.5 million respectively
  • On June 1, 2017, the Bakken Pipeline system was placed into service and started generating cash flow
  • 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
  • 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
 
Mark Maki - Senior VP & President, EEP

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 overall,” 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 ongoing maintenance and modernization regimen for the Lakehead system. The lines were tested to 1200 pounds per square inch (psi), which is the same test pressure used when the pipes were installed and well above the normal operating pressure of 150 psi. This test, coupled with our on-going maintenance and inspection programs, validates 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 percent ownership in the Bakken Pipeline System with EEP owning 25 percent and EECI owning 75 percent, respectively. Under the terms of the joint funding arrangement with EECI, EEP has a five-year option to acquire an additional 20 percent 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 kbpd 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 US$2.9 billion. The revised cost is approximately 12 percent 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 U.S. and Canada.”

Mark Maki

President, EEP