A Closer Look at Enbridge Inc (USA) (ENB)’s Earnings

Canada’s midstream heavyweights have finally reported fourth-quarter earnings, as both TransCanada Corporation (USA) (NYSE:TRP) and Enbridge Inc (USA) (NYSE:ENB) released their information last week. TransCanada reported on Wednesday, missing analysts’ expectations on EPS and revenue. Enbridge reported on Friday, missing on EPS but beating on revenue. Now that the dust has settled, let’s take a closer look at Enbridge’s fourth quarter.

Enbridge Inc (USA) (NYSE:ENB)

General rundown
Enbridge’s earnings came in at $0.18 per share, thanks to an asset-impairment charge on its Stingray and Garden Banks assets, two natural gas pipelines offshore of the Gulf of Mexico which the company has deemed irrelevant. Adjusted earnings were $0.42 a share, up from $0.36 last year. Revenue was $7.17 billion, which was down from $7.31 billion last year.

Full-year adjusted earnings climbed to $1.62 per share, an 11% increase over the full-year 2011. Shares of the stock climbed 16% in 2012.

Q4: Digging deeper
With some good news and some bad news coming out of the Enbridge camp, it’s all the more important to break down performance segment by segment, so let’s get started.

The best performing segment was the liquids pipelines group, which posted a $57 million improvement for the quarter, and a $148 million boost for the full year, as compared to 2011. The growth came largely because 2012 was the first full year for Enbridge’s mainline Competitive Tolling Settlement. Volumes and tolls both increased on the line. Enbridge’s Seaway pipeline joint venture with Enterprise Products Partners L.P. (NYSE:EPD) also contributed to the improved performance.

Gas distribution improved $15 million over the fourth quarter of last year, and eked out a $3 million gain for the full year. Management attributes the gains in this segment to customer growth, rate variances, and pipeline capacity optimization. Spending increased on system integrity and safety-related costs, as well as employee costs. In reality, this should be the case with every pipeline company. Top-notch employees are in high demand across all aspects of the oil and gas industry right now; as always, safety should be a priority. I’m glad to see the increases.

Gas pipelines, processing, and energy services dropped $4 million compared to the fourth quarter of last year, and fell $9 million for the full year. This is mainly because of the poor performance of the offshore pipeline division of this segment.

The sponsored investments segment was down $7 million in the fourth quarter and up $19 million for the full year. Enbridge Energy Partners, L.P. (NYSE:EEP) hurt more than it helped this quarter. Despite a higher contribution from its liquids pipelines, the MLP’s natural gas business decreased, and it was also hit with increased operating, safety, and personnel costs. Again, especially given the Line 6B disaster from 2010, those costs are not worrisome. Sponsored investments did get a boost from the Enbridge Income Fund, which posted a full year of earnings from Enbridge’s renewable projects, as well as some asset drop-downs.