Second Quarter 2015 Earnings Presentation
Forward Looking Statement
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This presentation includes forward-looking statements, which are statements that frequently use words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "intend," "may," "plan," "position," "projection," "should," "strategy," “opportunity,” "target," "will" and similar words. Although we believe that such forward-looking statements are reasonable based on currently available information, such statements involve risks, uncertainties and assumptions and are not guarantees of performance. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond the ability of Midcoast Energy Partners, L.P. (the “Partnership”) to control or predict. The Partnership’s forward looking statements are subject to risks and uncertainties pertaining to operating performance, regulatory parameters, project approval and support, weather, economic conditions, interest rates and commodity prices, including but not limited to the following specific factors that could cause actual results to differ from those in the forward-looking statements: (1) changes in the demand for or the supply of, forecast data for, and price trends related to natural gas, natural gas liquids and crude oil and the response by natural gas and crude oil producers to changes in any of these factors; (2) the Partnership’s ability to successfully complete and finance expansion projects; (3) the effects of competition, in particular, by other pipeline and gathering systems, as well as other processing and treating plants; (4) shut-downs or cutbacks at the Partnership’s facilities or refineries, petrochemical plants, utilities or other businesses for which the Partnership transports products or to whom the Partnership sells products; (5) hazards and operating risks that may not be covered fully by insurance; (6) changes in or challenges to the Partnership’s rates; (7) changes in laws or regulations to which the Partnership is subject, including compliance with environmental and operational safety regulations that may increase costs of system integrity testing and maintenance; and (8) cost overruns and delays on construction projects resulting from numerous factors.
Forward-looking statements regarding “drop-down” opportunities are further qualified by the fact that Enbridge Energy Partners, L.P. is under no obligation to offer to sell us additional interests in Midcoast Operating, L.P., and we are under no obligation to buy any such additional interests. As a result, we do not know when or if any such additional interests will be purchased.
Forward-looking statements regarding joint funding or investments in Partnership projects by Enbridge Energy Partners, L.P. (“EEP”) are further qualified by the fact that EEP has no obligation to participate in such projects, and there is no guarantee that it will do so.
Except to the extent required by law, we assume no obligation to publically update or revise any forward looking statements, whether as a result of new information, future events or otherwise. In addition to the risks listed above, other risks include those detailed from time to time in the Partnership’s Securities and Exchange Commission, or SEC, reports, including, without limitation, in the Partnership’s Annual Report on Form 10-K for December 31, 2014 and any subsequently filed Quarterly Report on Form 10-Q for additional factors that may affect results. These filings are available to the public at the SEC's website (www.sec.gov).
Second Quarter Highlights
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Solid Financial Performance
•
Three consecutive quarters of solid financial results with 1.18X
coverage through 1H 2015
•
Announced fifth consecutive quarterly cash distribution increase
Actions to Strengthen Underlying Business
•
Execution on plan to reduce annual operating & administrative
expenses by over $50 million on track
•
Streamlining organization with divestiture of non-core assets
•
Entered into an agreement with a leading third party to market natural
gas and enhance access to markets
Sponsor Actions Announced
•
Enhance distribution growth through 2017 (~5% CAGR)
•
Expect to receive next drop-down proposal in 2016
Financial Results
819 806 858 831 794 1,029 1,063 1,056 1,007 968 300 304 297 287 274 500 1,000 1,500 2,000 2,500 2Q14 3Q14 4Q14 1Q15 2Q15 Vol um e by Sy s te m (m m btu /d in th ou s a nd s )Anadarko East Texas North Texas
40,000 50,000 60,000 70,000 80,000 90,000 100,000 2Q14 3Q14 4Q14 1Q15 2Q15 N G L Pro d u ct io n ( b p d )
Volumes
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Midcoast Operating, LP
2Q 2015
2Q 2014
Adjusted EBITDA, inclusive of
other cash items
(3)$59.6
$60.7
Midcoast Energy Partners (MEP)
2Q 2015
2Q 2014
Adjusted EBITDA
(2)$24.5
$16.7
Distributable Cash Flow
$19.4
$14.4
Coverage
1.19x
0.99x
Debt / EBITDA
3.6x
Financial Summary
(1)(1) $ Millions, unless otherwise noted. Unaudited; adjusted results exclude the effect of: (a) non-cash, mark-to-market net gains and losses; (b) non-cash goodwill impairment; (c) non-cash asset impairment; among other adjustments. Refer to the Non-GAAP Reconciliation tables presented in the supplemental slides.
(2) Adjusted EBITDA includes equity earnings from joint venture investment in Texas Express NGL system.
(3) “MOLP Adjusted EBITDA, inclusive of other cash items” includes equity earnings and cash distributions in excess of equity earnings from joint venture investment in Texas Express NGL system and $25 million annual G&A abatement.
Operational Highlights
Natural gas and NGL system volumes
in-line with expectations
Executed cost reduction measures
meaningfully benefit financial results
Capital Expenditures Forecast
& Available Liquidity
(1) Represents capital expenditure forecast at Midcoast Operating level. Capex to be proportionally shared between EEP and MEP based on ownership interest in Midcoast Operating. (2) Joint funding forecast is based upon 12 months of current EEP ownership at 48.4% of Midcoast Operating.
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•
Sufficient liquidity to fund balance of year
capital requirements
Midcoast Operating, L.P.
($ millions)
2015e
Beckville Gas Processing Plant
60
Eaglebine Developments
135
Compression Capital
25
Well Connect Expansion Capital
35
Expansion Capital
40
Maintenance Capital
45
Total Midcoast Operating Capital
(1)$340
Less: Joint funding from EEP
(2)$165
Total MEP Capital Expenditure Forecast
$175
$440.0 $535.0 $27.5 $5.3 $0.0 $200.0 $400.0 $600.0 6/30/2015 3/31/2015
$ millions
Available Liquidity
Available Credit
Cash
$467.5 MM
$540.3 MM
Executing on Strategic Priorities to
Strengthen Underlying Business
~70%
Hedged
(1)Operating & Admin Expense Trend*
* O&A expenses calculated net of annual $25 million G&A abatement.
