Will EEP’s Capital Projects Boost Earnings?
EEP’s capital expenditures
Enbridge Energy Partners (EEP) spent ~$207 million on capex in the first half of 2017. It estimates it will spend $388 million of capital expenditures for the rest of 2017. The Bakken Pipeline system was placed in service on June 1, 2017. Enbridge Energy Company and EEP hold an effective 27.6% ownership in Energy Transfer Partners’ (ETP) Bakken Pipeline system. EEP owns 25% of this 27.6% stake.
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Enbridge Energy Partners has started construction on the US L3R program in Wisconsin. The project is expected to enhance the reliability of EEP’s Lakehead system and is expected to come into service in the second half of 2019.
The final cost estimate for the US L3R Program is $2.9 billion, 12% above the original estimate in 2014 when the project was sanctioned. However, the return on the project will be recovered through a surcharge and will not be impacted by higher costs.
“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,” said Mark Maki, EEP’s president, in the company’s 2Q17 earnings release.
Distributable cash flow
As the above graph shows, Enbridge Energy Partners’ distributable cash flow fell consecutively for the last two quarters. The fall in the company’s earnings, as discussed in the previous parts of this series, contributed to the fall in its distributable cash flow. EEP’s distribution coverage for 2Q17 was 1.14x. The company expects its coverage for 2017 to be ~1.2x.
Enbridge Energy Partners paid a distribution of $0.35 per unit for 2Q17. The company had cut its per unit distribution by 40% in 1Q17. EEP is currently trading at a yield of ~8.6%, higher than most other MLPs as well as the Alerian MLP Index.
In the next part, we’ll see how the short interest in Enbridge Energy Partners has moved recently.