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Enbridge Tweaks Outlook on Weak NGL Prices

Enbridge Energy Partners LP ast Tuesday lowered its full-year earnings projections to the C$440-470 million range from earlier guidance of C$510-$550 million. The near-term outlook for the natural gas business is being hurt by continuing declines in natural gas liquids (NGL) prices, but management said the company has "significantly mitigated" the the negative impact through "existing commodity hedging arrangements."

Enbridge President Mark Maki said during a conference call the revised earnings guidance reflects lower-than-expected results from the pipeline company's natural gas businesses, lower NGL prices and lower natural gas production. As a result, in the near term, Enbridge will be cutting back on its capital expenditures on the gas side in favor of more emphasis on crude oil.

"Local, national and global fundamentals are all impacting the North American NGL price environment," said Maki, who added that despite the current downturn the long-term outlook for the partnership "remains strong."

CFO Stephen Heyland noted that Enbridge's "natural gas business will face challenges over the near-term planning horizon. As such, we will exercise prudent financial management...and plan to reduce capital investment in the natural gas business in the near term. We'll continue to look for opportunities in the gas business long term."

The NGL business is a primary focus for Enbridge, Maki said, and the partnership has a "strong competitive position" in the sector. Liquids tend to produce "highly certain cash flows." In the allocation of capital, the liquids segment is going to be where Enbridge allocates its resources first.

"It isn't that we don't like the natural gas business or don't see opportunities there; we do," Maki said. "Projects that look like Texas Express pipeline would be of interest to us. Or if there are ways we can enhance existing assets. The gas business is still very important to us, and an important diversification for the partnership."

However, Maki said the natural gas business comes with periodic "swings," which the liquids business doesn't have for the most part. The liquids business "has a leg up" when it comes to having more stability and certainty relatively, he said.

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