Why Are Enbridge Energy Partners’ 3Q15 Results Crucial?
(Continued from Prior Part)
Enbridge Energy Partners’ segments
Enbridge Energy Partners (EEP) carries out its operations through two reportable segments: Liquids and Natural Gas. Its Liquids segment generates revenues through transportation and other services. On the other hand, the Gas segment’s revenues are contributed by both commodity sales and transportation and other services.
Segmental contribution
In 2Q15, 8% of the total transportation and services revenues were generated by the Natural Gas segment. Moreover, such revenues accounted for only 6% of the Natural Gas segment’s revenues, the remaining being contributed by commodity sales. Thus, the performance of the Natural Gas segment appears dependent on commodity prices. In 2Q15, The Natural Gas segment accounted for ~60% of total revenues. Its contribution to the company’s EBITDA was, however, negative.
The above graph shows the segmental contribution to Enbridge Energy Partners’ EBITDA over six quarters. As the graph shows, the contribution of Natural Gas segment to the company’s EBITDA is relatively less. The Natural Gas segment’s negative EBITDA in 2Q15 is attributed to a goodwill impairment charge recognized by the segment in the quarter. The company’s high EBITDA in 4Q14 was contributed by a $161.5 million non-cash, mark-to-market gain on its Natural Gas segment’s hedges.
Liquids segment’s 3Q15 EBITDA
Increased capacity due to additional assets placed into service in Enbridge Energy Partners’ Liquids segment should contribute to the segment’s EBITDA in the third quarter. A key project here was the Southern Access expansion that went into service in May 2015. Moreover, additional assets that were placed into service in 2014 on the company’s Lakehead system should continue to contribute to the segment’s EBITDA in the quarter.
Natural Gas segment’s 3Q15 EBITDA
Cost reduction efforts in Enbridge Energy Partners’ Natural Gas segment, reducing operating costs in 2Q15, may contribute to the segment’s EBITDA in 3Q15 as well.
The continued low price environment for natural gas, NGLs, or natural gas liquids, and condensate may continue to impact drilling activity in the company’s areas of operations. This will likely negatively impact its Natural Gas segment’s 3Q15 EBITDA. Enbridge Energy Partners forms ~1% of the Guggenheim Multi-Asset Income ETF (CVY).
Other MLPs with natural gas gathering and processing assets include Tallgrass Energy Partners (TEP), Southcross Energy Partners (SXE), and Summit Midstream Partners (SMLP).
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