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Enbridge Rethinking NatGas Business on Low Prices, Volumes

Low natural gas prices and producer pullbacks have Enbridge Energy Partners LP (EEP) rethinking the future of its natural gas business.

EEP said Monday it is considering "strategic alternatives" for its investments in Midcoast Operating LP and Midcoast Energy Partners LP (MEP). "EEP has begun working with MEP to explore and evaluate a broad range of strategic alternatives to address the challenges within our natural gas business,"it said.

First quarter adjusted operating income for EEP's natural gas segment decreased $8.7 million to a loss of $1.6 million compared with the comparable period in 2015 and was "...predominantly attributable to lower natural gas and NGL [natural gas liquids] system production volumes, in addition to lower commodity prices, net of hedges," EEP said.

"Lower system volumes were primarily attributable to the continued low commodity price environment for hydrocarbons, which has resulted in reductions in drilling activity from producers in the areas we operate. The decrease in segment operating income was partially offset by reductions in operating and administrative expenses from enacted cost reduction measures."

Houston-based MEP was formed by EEP as a full-service natural gas and NGL midstream business and is EEP's primary vehicle for participation in the U.S. natural gas and NGL midstream sector. MEP assets consist of a 51.6% controlling interest in Midcoast Operating, which owns a network of natural gas and NGL gathering and transportation systems, natural gas processing and treating facilities and NGL fractionation facilities primarily in Texas and Oklahoma. Midcoast Operating also owns and operates natural gas, condensate and NGL logistics and marketing assets.

In the natural gas business, throughput in the first quarter was 1.82 million MMBtu/d compared with 2.13 million MMBtu/d in the year-ago quarter. Total NGL system production was 73,499 b/d compared with 81,046 b/d in the year-ago quarter.

EEP overall for the first quarter reported record liquids pipeline systems deliveries of 3.3 million b/d, which is 15% higher than the first quarter 2015. "The increase in system deliveries over the fourth quarter of 2015 is due to new market access that entered service on the Enbridge system during the fourth quarter, specifically the reversal and expansion of Line 9B to Eastern Canada and the Southern Access Extension into the Patoka, IL, market," said Mark Maki, EEP president.

"Western Canada and the Bakken region both have inadequate pipeline takeaway capacity and our pipeline systems provide our customers with reliable economic access to premium markets. This provides us with a high level of confidence in the continued high system utilization in our core liquids pipelines business."

First quarter adjusted earnings before interests, taxes, depreciation and amortization were $466.2 million compared with $432.2 million in the year-ago quarter, and distributable cash flow was $244.5 million compared with $253.7 million a year ago. Adjusted net income was $113.8 million compared with $142.8 million a year ago.

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