Enbridge Energy Partners, L.P. (EEP)

Q2 2012 Earnings Call

July 31, 2012 9:00 am ET


Sanjay Lad - IR

Mark Maki - President

Steve Neyland - VP, Finance

Leon Zupan - President Gas Pipelines

Steve Wuori - President Liquids Pipelines

Terry McGill - SVP Natural Gas Operations and Engineering

Dave Wudrick - Treasurer

Bill Ramos - Controller


Ted Durbin - Goldman Sachs

T.J. Schultz - RBC Capital Market

Ross Payne - Wells Fargo

Sharon Lui - Wells Fargo

James Jampel - HITE



Good day, ladies and gentlemen, and welcome to the Q2 2012 Enbridge Energy Partners, L.P. earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host for today, Mr. Sanjay Lad, Director of Investor Relations.

Sanjay Lad

Good morning, and welcome to the 2012 second quarter earnings conference call for Enbridge Energy Partners. This call is being webcast, and a copy of the presentation slides, supplemental slides, condensed unaudited financial statements and news release associated with it can be downloaded from our website at enbridgepartners.com.

A replay will be available later today, and a transcript will be posted to our website shortly thereafter. As a reminder, the Partnership's results are also relevant to Enbridge Energy Management or EEQ. I will be available after the call for any follow-up questions you may have. Our speakers today are Mark Maki, President; and Steve Neyland, Vice President Finance.

Available for the Q&A session, we also have Leon Zupan, President Gas Pipelines, Enbridge Inc.; Steve Wuori, President Liquids Pipelines, Enbridge Inc.; Terry McGill, Senior Vice President Natural Gas Operations and Engineering; Dave Wudrick, Treasurer; and Bill Ramos, Controller.

This presentation will include forward-looking statements. The risks associated with forward-looking statements have been outlined in the earnings release and the Partnership's SEC filings, and we incorporate those by reference for this call. This presentation also contains certain non-GAAP financial measures. The reconciliation schedules for these non-GAAP measures to comparable GAAP measures can be found in the Investor Section of our website.

Please turn to Slide 3. I will now turn the conference over to Mark Maki, President.

Mark Maki

Thank you, Sanjay. Good morning, and welcome to our second quarter 2012 earnings call. As it relates to our agenda this morning, I will discuss our recent pipeline release on Line 14 in Wisconsin, our long-term growth outlook, and then pass it along to Steve Neyland, to present the financial results.

Let me first provide a brief update on the recent pipeline release on our Line 14 in Grand Marsh, Wisconsin. Enbridge continues to make significant clean-up and restoration progress at the site and the cleanup is substantially complete. Enbridge remains committed to the thorough restoration of the site as quickly as possible.

Repairs to the pipeline are well underway. Replacement of the affected section of pipe is expected later on today. And the pipe will be sent to experts, metallurgical examination.

Enbridge's plan to restart will be reviewed and approved by the Pipeline and Hazardous Materials Safety Administration. The pipeline is expected to be operated at a reduced pressure, following start up, while investigation and cause of the instant is complete. We estimate the cause for release of approximate $8 million.

Site restoration and repair will continue to be conducted in compliance with all governmental regulations and the company's stringent safety and environmental standards. The safety of people and the protection of the environment are our highest priorities. We greatly appreciate the support we received from local first responders, community leaders and the cooperation and patience of the affected landowners and the community.

Please turn to Slide 4. Last night we announced a distribution increase of 2.1% compared to the prior quarterly rate, which equates to an annualized cash distribution of $2.17. The distribution increase is in line with our annual distribution growth target of 2% to 5%.

Although, current new distribution coverage is forecast to be short of our long-term target, we are confident that the current slate of growth projects will increase distributable cash flows, once they are placed in service. Our degree of confidence and future cash flows from these secured projects is very high. And for that reason, we feel it is appropriate to demonstrate that confidence in the long-term with an increase in our current distribution. We will touch on our secured organic growth programs in a moment.

Let's move forward to Slide 5. We believe the long-term outlook for the Partnership remain strong as the crude oil supply fundamentals from Western Canada and the Bakken formation in North Dakota, resulting in higher levels of system utilization on our liquids pipeline systems. We provided customers, analysts and investors our crude oil supply forecast for a number of years. We are bullish as ever on the potential this North American resource base.

2012 Canadian Association of Petroleum Producers supply outlook is presented on the chart on the left. Compared to the 2011 outlook, Western Canadian conventional production is higher by almost 400,000 barrels per day by year 2025 and oil sands production is higher by almost 500,000 barrels per day. Advancements in drilling technology accelerated project timeline and the addition of new projects, as propelled the supply growth outlook upward.

Moving to chart on the right. Crude oil supply growth in the Bakken formation is another great story. The supply forecast top a million barrels per day by the end of the current decade. Partnership is well positioned to purse the next round of pipeline expansion to support this production growth and offer safe, secure and an economical corridor for incremental takeaway from the region. The backdrop for Enbridge's liquids market access programs are the strong crude oil supply fundamentals, rising from the unprecedented growth outlook in North American crude oil production.

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