As another indicator that declining natural gas liquids (NGL) prices are dragging down some bottom lines in the midstream sector, Enbridge Energy Partners LP said Tuesday it is lowering its full-year earnings projections to the $440-470 million range from earlier guidance of $510-$550 million.
Although Enbridge executives acknowledged during a conference call that the near-term outlook for the company's natural gas business is being hurt by continuing declines in NGL prices, the company thinks it has "significantly mitigated" the extent of the negative impact through "existing commodity hedging arrangements."
Enbridge President Mark Maki said that 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."
Last month, Standard & Poor's Ratings Services (S&P) revised its NGL pricing assumptions for 2012, 2013 and 2014 (see Shale Daily, June 12). Lowering assumptions for 2012, the ratings agency blamed unplanned ethane cracker outages for low prices that could stick around through much of the year. The ratings service lowered its price assumption for this year for both ethane and propane.
S&P said it expects the relative prices of butane, isobutene and natural gasoline or condensate to track West Texas Intermediate crude oil prices in a fairly narrow range as they have historically (70-75% for butane, 75-80% for isobutene and 90-95% for natural gasoline).
"Our natural gas business will face challenges over the near-term planning horizon," said Enbridge CFO Stephen Heyland. "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, because the partnership has a "strong competitive position" in the sector and 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."
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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