This Week in Midstream


We are right in the thick of it, midstream fans. It was a busy week for the industry, with several companies reporting second-quarter earnings amid a bevy of news items. Without further ado, here's a recap of this week's highlights and lowlights.

Earn baby, earn!
A slew of midstream outfits reported earnings this week, including Enterprise Products Partners (NYSE: EPD) , Enbridge (NYSE: ENB) , ONEOK (NYSE: OKE) , and Magellan Midstream Partners (NYSE: MMP) .

Magellan turned in the best overall performance, increasing profit and earnings year-over-year, and beating analyst expectations on revenue. The partnership increased profit from $103 million last year, to $137.8 million this year. Revenue grew 17% to $449.5 million. The company increased its full-year per-share earnings guidance from $3.75 per unit to $3.90.

Enterprise Products Partners reported a strong quarter as well. Despite an overall decrease in revenue, the partnership managed to increase profit and earnings per unit on the strength of smart hedges, lower operating expenses, and increased volumes across its system. Enterprise increased second-quarter profit 31% from $433.7 million in 2011 to $566.3 million this year. Earnings per unit increased from $0.51 to $0.64 over the same period.

Hedging losses completely decimated Enbridge's second-quarter earnings. Profit in 2011 was C$302 million, but the company only managed to eke out C$11 million this year, because of its hedges. Earnings came in at C$0.01 per share, light years away from last year's second-quarter result of C$0.40. Even if you backed out the derivatives losses, the company still failed to meet analyst expectations. Enbridge reaffirmed its year-long earnings forecast, however, of C$1.58-C$1.74 per share. Enbridge did increase cash flow from operations, to C$984 million.

ONEOK's results were a mixed bag as well. Earnings grew year-over-year from $0.67 to $0.69, but revenue tanked nearly 24%, from $2.8 billion last year to $2.1 billion this year. Operating income increased 13% to $228.1 million. Operating expenses also increased, however, up 11% over last year to $174.4 million. ONEOK's NGL business is carrying it right now, and the company increased its full-year net income guidance on the strength of the performance of its natural gas liquids segment.

Enbridge fails again
Last Friday, Enbridge's Line 14 pipeline leaked around 1,200 barrels of oil in a Wisconsin field. This week, U.S. regulators refused to give the company permission to restart the line. This really comes as no surprise, given the recent findings of the National Transportation Safety Board's review of the company's 2010 spill in Michigan.

Enbridge will have to submit a plan to the Pipeline and Hazardous Materials Safety Administration proving it can meet safety standards before the line can be restarted. PHMSA corrective orders can delay pipeline restarts by weeks.

Enbridge is dealing with increased oversight at home as well, as Canada's National Energy Board announced a series of safety audits for the company over the next few months.

Keystone XL approval, sort of!
Last Friday, TransCanada (NYSE: TRP) received its third and final permit from the Army Corps of Engineers to build the southern leg of its Keystone XL pipeline. Naturally, there is a lawsuit to stop construction, which is expected to begin within a few weeks. A federal judge is expected to decide today whether to issue a preliminary injunction against the Army Corps to block the project.

TransCanada is finding more success in Canada right now. The company announced on Wednesday that it has been selected to build and operate the Northern Courier Pipeline project, designed to carry bitumen from the Fort Hills mine 55 miles to an upgrader in Alberta.

It's a small project with an estimated capital cost of $660 million, but the line is already fully subscribed, and let's face it, pipeline companies will take all the good news they can get right now.

Foolish takeaway
Midstream is where it's at, folks. The energy industry will spend an estimated $130 billion-$210 billion expanding natural gas infrastructure over the next 20 years. After all, the more oil and gas that flows through those pipelines and processing centers, the more cash there is to flow into your pockets. Stay on top of all the midstream action by adding the companies above to My Watchlist.