Form 8-K Midcoast Energy Partners For: Jul 29

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Date of report (Date of earliest event reported): July 29, 2015

 

 

MIDCOAST ENERGY PARTNERS, L.P.

(Exact Name of Registrant as Specified in Charter)

 

 

DELAWARE	1-36175	61-1714064
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

 

1100 LOUISIANA, SUITE 3300, HOUSTON, TEXAS 77002

(Address of Principal Executive Offices) (Zip Code)

 

(713) 821-2000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Item 1.01. Entry into a Material Definitive Agreement.

 

On July 29, 2015, Midcoast Energy Partners, L.P., referred to herein as “we” or “our,” Midcoast OLP GP, L.L.C. and Enbridge Energy Partners, L.P. (“EEP”) entered into Amendment No. 1 to the Amended and Restated Agreement of Limited Partnership dated November 13, 2013 (the “Amendment”) of Midcoast Operating, L.P. (“Midcoast Operating”). The Amendment modifies the distribution payable to us and EEP in certain circumstances starting with and including the distributions with respect to the quarter ending June 30, 2015 and continuing through and including the distributions made with respect to the quarter ending December 31, 2017. Pursuant to the Amendment, during the applicable period and so long as we and EEP are the sole limited partners of Midcoast Operating, if we have a distribution coverage ratio that is less than 1.0x in a particular quarter, then the distribution payable to EEP for such quarter will be reduced and the distribution payable to us will be increased by an amount, up to 100 percent of EEP’s pro rata share of the limited partner distribution amount for such quarter, that is needed for us to achieve a 1.0x coverage ratio. The Amendment also provides that if we increase our distribution per Class A common unit by more than one-half a cent in a particular quarter, then any distribution adjustment will be calculated as if our distribution per Class A common unit had only increased one-half a cent for that quarter.

 

The above description of the Amendment is qualified in its entirety by reference to the complete text of such Amendment filed as Exhibit 10.1 hereto, which is hereby incorporated herein by reference.

 

Item 2.02. Results of Operations and Financial Condition.

 

We issued a press release on July 29, 2015 announcing our financial results for the three and six month periods ended June 30, 2015, which is attached hereto as Exhibit 99.1. As noted in the press release, a copy of our unaudited condensed consolidated financial statements for the three and six month periods ended June 30, 2015 is available on our website at www.midcoastpartners.com and is attached hereto as Exhibit 99.2. This information is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any registration statements filed under the Securities Act of 1933, as amended.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

Reference is made to the “Index of Exhibits” following the signature page, which is hereby incorporated into this Item.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

 

	midcoast energy partners, L.P. (Registrant)
	By:	Midcoast Holdings, L.L.C.
		its General Partner
Date: July 29, 2015	By:	/s/ Noor Kaissi
		Noor Kaissi Controller (Duly Authorized Officer)

 

 

Index of Exhibits

 

Exhibit Number		Description
10.1		Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Midcoast Operating, L.P., dated July 29, 2015
99.1		Press release of Midcoast Energy Partners, L.P., dated July 29, 2015 reporting financial results for the three and six month periods ended June 30, 2015
99.2		Unaudited condensed consolidated financial statements of Midcoast Energy Partners, L.P. for the three and six month periods ended June 30, 2015

 

 

Exhibit 10.1

 

AMENDMENT NO. 1

 

TO

 

AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP

OF

MIDCOAST OPERATING, L.P.

 

July 29, 2015

 

This Amendment No. 1 (this “Amendment No. 1”) to the Amended and Restated Agreement of Limited Partnership dated November 13, 2013 (as amended, the “Partnership Agreement”) of Midcoast Operating, L.P. (the “Partnership”) is hereby adopted by Midcoast OLP GP, L.L.C., a Delaware limited liability company (the “General Partner”), Midcoast Energy Partners, L.P., a Delaware limited partnership (“MEP”), and Enbridge Energy Partners, L.P., a Delaware limited partnership (“EEP” and, together with MEP, the “Limited Partners”). Capitalized terms used but not defined herein are used as defined in the Partnership Agreement.

 

RECITALS

 

WHEREAS, EEP proposed this Amendment No. 1 to MEP and the General Partner because, among other reasons, EEP believes that this Amendment No. 1 will provide a benefit to EEP as a significant holder of Class A common units of MEP; and

 

WHEREAS, the General Partner and the Limited Partners wish to amend the Partnership Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth in this Amendment No. 1, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the General Partner and the Limited Partners hereby agree as follows:

 

Section 1. Amendments.

 

(a) Section 6.01 in the Partnership Agreement is hereby amended and restated to read in its entirety:

 

“Within 45 days following the end of each Quarter commencing with the Quarter ending December 31, 2013, the Partnership shall distribute to the Partners pro rata in accordance with their respective Percentage Interests an amount equal to 100% of Distributable Cash; provided, that, commencing with and including the distributions with respect to the Quarter ending June 30, 2015 and continuing through and including the distributions made with respect to the Quarter ending December 31, 2017, within 45 days following the end of each such Quarter, the Partnership shall distribute to the Partners an amount equal to 100% of Distributable Cash in accordance with Schedule B to this Agreement. Notwithstanding any other provision of this Agreement, the Partnership shall not make a distribution to the Partners on account of their interests in the Partnership if such distribution would violate the TBOC or other applicable law.”

 

(b) The Partnership Agreement is hereby amended by adding the new Schedule B attached to this Amendment No. 1.

 

Section 3. Ratification of Partnership Agreement. Except as expressly modified and amended herein, all of the terms and conditions of the Partnership Agreement shall remain in full force and effect.

 

Section 4. Governing Law. This Amendment No. 1 will be governed by and construed in accordance with the laws of the State of Texas, without giving effect to the principles of conflicts of law thereof. Any right to trial by jury with respect to any claim or proceeding related to or arising out of this Amendment No. 1, or any transaction or conduct in connection herewith, is hereby waived by each of the Partners.

  

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of July 29, 2015.

 

	GENERAL PARTNER:
	MIDCOAST OLP GP, L.L.C.
	By: Midcoast Holdings, L.L.C., as general partner of Midcoast Energy Partners, L.P., as sole member of Midcoast OLP GP, L.L.C.
	By:	/s/ Chris Kaitson
	Name: Chris Kaitson
	Title: Vice President—Law and Assistant Secretary
	LIMITED PARTNERS:
	MIDCOAST ENERGY PARTNERS, L.P.
	By: Midcoast Holdings, L.L.C., its general partner
	By:	/s/ Chris Kaitson
	Name: Chris Kaitson
	Title: Vice President—Law and Assistant Secretary
	ENBRIDGE ENERGY PARTNERS, L.P.
	By: Enbridge Energy Management, L.L.C., as delegate of Enbridge Energy Company, Inc., as general partner
	By:	/s/ Chris Kaitson
	Name: Chris Kaitson
	Title: Vice President—Law and Assistant Secretary

 

 

Schedule B

 

Distributable Cash shall be distributed by the Partnership for such Quarter to the Partners as follows: 0.001% (the “GP Quarterly Distribution Percentage”) to the General Partner and, so long as MEP and EEP are the sole Limited Partners, to EEP based on the EEP Quarterly Distribution Percentage and to MEP based on the MEP Quarterly Distribution Percentage; provided, that if the Limited Partners cease to be comprised solely of MEP and EEP, then Distributable Cash shall be distributed by the Partnership to the Limited Partners pro rata in accordance with their respective Percentage Interests. Capitalized terms used but not defined in this Schedule B shall have the meanings assigned to such terms in the Partnership Agreement.

 

Certain definitions for this Schedule B:

 

“EEP Quarterly Distribution Percentage” means EEP’s Percentage Interest, unless the MEP Coverage Ratio for the applicable Quarter is less than 1.0 (prior to giving effect to the following), in which case the EEP Quarterly Distribution Percentage shall be the percentage equal to 100% minus the GP Quarterly Distribution Percentage minus the MEP Quarterly Distribution Percentage; provided, that in no instance will the EEP Quarterly Distribution Percentage be less than 0%.

 

“MEP Coverage Ratio” means an amount equal to MEP Distributable Cash for the applicable Quarter divided by the Total Distribution for the applicable Quarter.

 

“MEP Distributable Cash” means, with respect to any Quarter, an amount equal to the total of the following (amounts in this definition shall be derived from the line items in the MEP financial statements for such Quarter unless otherwise specified below):

 

Net income attributable to general partner and limited partner interests in MEP

Add:

Normalizing adjustments that are made in connection with the MEP Adjusted Earnings that are net of non-controlling interest

Adjusted net income (loss)

Add:

Depreciation and amortization

Adjusted net income attributable to EEP retained interest

Interest expense

Income tax expense

Less:

Adjusted EBITDA attributable to EEP

Adjusted EBITDA attributable to MEP

Less:

Maintenance capital expenditures attributable to MEP

Income tax expense attributable to MEP

Interest expense attributable to MEP

Add:

Distribution in excess of equity earnings attributable to MEP

G&A abatement pursuant to Intercorporate Services Agreement attributable to MEP

MEP Distributable Cash

 

 

“MEP Quarterly Distribution Percentage” means MEP’s pro rata Percentage Interest, unless the MEP Coverage Ratio for the applicable Quarter is less than 1.0 (prior to giving effect to the following), in which case the MEP Quarterly Distribution Percentage shall be the percentage equal to the sum of MEP’s Percentage Interest plus the MEP Quarterly Increase Percentage; provided, that in no instance will the MEP Quarterly Distribution Percentage be more than 99.999%.

 

“MEP Quarterly Increase Percentage” means a percentage equal to (i) the Total Distribution for such quarter minus MEP Distributable Cash for such quarter divided by (ii) Distributable Cash.

 

“MEP LP Agreement” means the First Amended and Restated Agreement of Limited Partnership of MEP dated November 13, 2013, as amended, modified or replaced from time to time.

 

“Total Distribution” means for the Quarter, the aggregate amount declared by the Board of Directors of MEP’s general partner to be distributed to the unitholders of MEP; provided that, if the distribution amount per MEP Class A common unit for the Quarter would exceed a $0.005 increase over the distribution amount per MEP Class A common unit for the immediately preceding Quarter, then the Total Distribution amount shall be reduced by an amount equal to the excess of the Total Distribution amount minus the aggregate amount that would have been distributed if the declared distribution was a $0.005 increase over the distribution amount per MEP Class A common unit for the immediately preceding Quarter.

 

 

Exhibit 99.1

 

 

NEWS RELEASE

 

Midcoast Energy Partners, L.P. Declares Distribution Increase and Reports Earnings for Second Quarter 2015

 

HOUSTON — (July 29, 2015) -

 

SECOND QUARTER HIGHLIGHTS

 

·

Reported second quarter adjusted EBITDA and distributable cash flow of $24.5 and $19.4 million, respectively; distribution coverage of 1.19x.

 

·

Announced fifth consecutive quarterly cash distribution increase, representing an 8.5 percent increase compared to the second quarter of 2014.

 

·

Plan to reduce annual operating and administrative costs by over $50 million progressing ahead of schedule and complemented by additional actions.

 

·

Enbridge Energy Partners, L.P. (“EEP”) announced sponsor actions to enhance distribution growth at MEP through 2017, while maintaining 1.0x coverage at MEP.

 

·

Expect to receive next drop-down proposal from EEP in 2016 with attractive economic terms.

 

Midcoast Energy Partners, L.P. (NYSE: MEP) ("Midcoast Partners" or "the Partnership") announced today that the board of directors of its general partner has declared a quarterly cash distribution of $0.3525 per unit, or $1.41 per unit on an annualized basis, on all of its outstanding common and subordinated units for the quarter ended June 30, 2015. The approved distribution represents an increase of 1.4 percent over the previous quarter’s distribution and an 8.5 percent increase compared to the second quarter of 2014. The distribution is payable on August 14, 2015, to unitholders of record at the close of business on August 7, 2015.

 

“Midcoast Energy Partners reported a third consecutive quarter of solid financial results, supported by executed actions to strengthen the underlying business, including our ongoing operating and administrative cost reduction plan, supportive hedging program and newly secured low-risk business. We continue to meaningfully progress our objectives to establish a more efficient and sustainable cost structure, and have also taken steps to further streamline our organization with the divestiture of certain non-core assets. Additionally, we have entered into an agreement with an industry-leading natural gas marketer to enhance market access for our system’s natural gas production,” said C. Gregory Harper, president for the Partnership.

                                                                                                                       

“While we are pleased with our solid financial performance and coverage well above 1.0x through the first half of 2015, we expect the effects of previously announced reduced drilling programs of our producer customers to materialize in the second half of this year and affect our natural gas and NGL system volumes. Our sponsor, EEP, has announced actions to strengthen MEP and enhance MEP’s ability to deliver distribution growth through 2017. Furthermore, EEP has indicated that it intends to extend the next drop-down proposal to MEP in 2016 with attractive economic terms that are expected to enhance accretion to our unitholders. Collectively, the management and sponsor actions are expected to position the Partnership to respond as commodity market fundamentals improve, while in the interim delivering five percent annual distribution growth through 2017,” noted Harper.

 

Midcoast Operating, L.P.’s (“Midcoast Operating”) partnership agreement has been amended to affect the distributions related to the quarter ended June 30, 2015 through the quarter ending December 31, 2017. If MEP has a distributable cash flow result that is less than 1.0x distribution coverage for any quarter, EEP will forgo a portion of its quarterly distribution from Midcoast Operating to help MEP achieve a 1.0x distribution coverage during that period. EEP will forgo this portion of its distribution up to the full amount of its distribution from Midcoast Operating for each such quarter, including up to a $0.005 per MEP unit quarterly distribution increase. There will be no requirement for MEP to reimburse EEP for these adjusted distributions, and any foregone distributions will be an adjustment to EEP’s capital account in MEP.

 

 

COMPARATIVE EARNINGS STATEMENT

 

The financial results for the three and six months ended June 30, 2015 for Midcoast Partners are presented on a consolidated basis. On July 1, 2014, we acquired an additional 12.6 percent interest in Midcoast Operating. Beginning July 1, 2014, we own a 51.6 percent controlling interest in Midcoast Operating, and for three and six months ended June 30, 2015, we consolidated the results of operations of Midcoast Operating and recorded a 48.4 percent non-controlling interest deduction for Enbridge Energy Partner, L.P.’s (“EEP”) retained interest in Midcoast Operating.

 

		Three months ended								Six months ended
		June 30,								June 30,
(unaudited, dollars in millions except per unit amounts)		2015				2014				2015				2014
Operating revenue		$	780.1			$	1,396.8			$	1,653.6			$	3,043.7
Operating expenses:
Cost of natural gas and natural gas liquids			670.6				1,259.8				1,449.7				2,748.5
Operating and maintenance			69.5				84.2				132.9				165.9
General and administrative			18.9				21.6				39.9				48.8
Goodwill impairment			226.5				-				226.5				-
Asset impairment			12.3				-				12.3				-
Depreciation and amortization			40.8				36.8				79.1				73.8
Operating income (loss)			(258.5	)			(5.6	)			(286.8	)			6.7
Interest expense			7.2				2.8				13.9				6.1
Other income			6.1				2.4				11.8				1.1
Income (loss) before income tax expense			(259.6	)			(6.0	)			(288.9	)			1.7
Income tax expense (benefit)			(3.1	)			0.8				(2.3	)			1.8
Net loss			(256.5	)			(6.8	)			(286.6	)			(0.1	)
Less: Net income (loss) attributable to noncontrolling interest			(120.0	)			(2.2	)			(130.1	)			4.1
Net loss attributable to general and limited partner ownership interest in Midcoast Energy Partners, L.P.		$	(136.5	)		$	(4.6	)		$	(156.5	)		$	(4.2	)
Net loss attributable to limited partners		$	(133.7	)		$	(4.5	)		$	(153.3	)		$	(4.1	)
Weighted average limited partner units (millions)			45.2				45.2				45.2				45.2
Net loss per limited partner unit (dollars)		$	(2.96	)		$	(0.09	)		$	(3.39	)		$	(0.09	)

 

Goodwill Impairment - During the three month period ended June 30, 2015, an analysis for impairment was performed for our natural gas business after we learned from customers that reductions in drilling will be prolonged in the producing basins in which we operate due to the continued low-price commodity environment. As a result of this analysis, it was concluded that $226.5 million of goodwill was impaired at Midcoast Operating.

 

 

COMPARISON OF QUARTERLY RESULTS

 

Following are explanations for significant changes in Midcoast Operating’s financial results, comparing the three and six month periods ended June 30, 2015 with the same periods of 2014. The comparison refers to adjusted operating income, which excludes the effect of non-cash and other items that are not indicative of our core operating results (see Non-GAAP Reconciliations section below).

 

Midcoast Operating		Three months ended								Six months ended
Adjusted Operating Income		June 30,								June 30,
(unaudited, dollars in millions)		2015				2014				2015				2014
Gathering, Processing and Transportation		$	4.3			$	9.6			$	11.2			$	3.5
Logistics and Marketing			(1.7	)			(3.0	)			(1.5	)			9.9
Adjusted operating income (loss)			2.6				6.6				9.7				13.4
MEP Corporate			(1.1	)			(2.2	)			(2.8	)			(2.2	)
Adjusted operating income		$	1.5			$	4.4			$	6.9			$	11.2

 

Gathering, Processing and Transportation – Second quarter adjusted operating results for the Gathering, Processing and Transportation segment were $5.3 million lower than the same period of 2014. The decrease in adjusted operating income was primarily attributable to decreased segment gross margin resulting from lower volumes from our natural gas and NGL systems and from lower commodity prices. The decrease was partially offset by lower operating and administrative costs attributable to workforce reductions and other cost savings measures enacted.

 

Midcoast Operating		Three months ended								Six months ended
Gathering, Processing and Transportation Throughput		June 30,								June 30,
(MMBtu per day)		2015				2014				2015				2014
East Texas			968,000				1,029,000				988,000				1,000,000
Anadarko			794,000				819,000				811,000				822,000
North Texas			274,000				300,000				281,000				286,000
Total			2,036,000				2,148,000				2,080,000				2,108,000
NGL Production
(Barrels per day)			2015				2014				2015				2014
Total System Production			81,056				83,480				81,051				82,196

 

Logistics and Marketing – Second quarter adjusted operating results for the Logistics and Marketing segment was $1.3 million higher than the same period of 2014. The increase in adjusted operating income was predominantly attributable to lower operating and administrative costs and additional optimization opportunities in our NGL marketing business.

 

MANAGEMENT REVIEW OF QUARTERLY RESULTS

 

Midcoast Partners will host a conference call at 8:30 a.m. Eastern Time on Thursday, July 30, 2015 to review its second quarter 2015 financial results. The call will be webcast live over the internet and may be accessed on the Midcoast Partners website under “Events and Presentations” or directly at

 

http://edge.media-server.com/m/p/umujrxjf

 

A replay will be available shortly afterward. Presentation slides and condensed financial statements will also be available on the Partnership’s website at the link below.

 

MEP Events and Presentations:

 

http://www.midcoastpartners.com/Investor-Relations/Events-and-Presentations/

 

 

Webcast link: http://edge.media-server.com/m/p/umujrxjf

 

The audio portion of the live presentation will be accessible by telephone at (855) 757-8879 (Passcode: 83954050) and can be replayed for 14 days after the presentation by calling (855) 859-2056 (Passcode: 83954050). An audio replay will also be available for download in MP3 format from either of the website addresses above.

 

NON-GAAP RECONCILIATIONS

 

Adjusted net income and adjusted operating income for the principal business segments are provided to illustrate trends in income excluding non-cash unrealized derivative fair value losses and gains and other items that are not indicative of our core operating results. The derivative non-cash losses and gains result from marking to market certain financial derivatives used by the Partnership for hedging purposes that do not qualify for hedge accounting treatment in accordance with the authoritative accounting guidance as prescribed under generally accepted accounting principles in the United States.

 

Midcoast Energy Partners		Three months ended								Six months ended
Adjusted Earnings		June 30,								June 30,
(unaudited; dollars in millions except per unit amounts)		2015				2014				2015				2014
Net loss attributable to general and limited partner ownership interests in Midcoast Energy Partners, L.P.		$	(136.5	)		$	(4.6	)		$	(156.5	)		$	(4.2	)
Noncash derivative fair value losses (gains)
-Gathering, Processing and Transportation			15.3				4.0				23.5				3.9
-Logistics and Marketing			(2.6	)			0.2				7.3				(1.5	)
Make-up rights adjustment			-				0.4				(0.3	)			1.2
Option premium amortization			(1.8	)			(0.3	)			(2.5	)			(0.6	)
Goodwill impairment			116.9				-				116.9				-
Asset impairment			6.3				-				6.3				-
Adjusted net loss		$	(2.4	)		$	(0.3	)		$	(5.3	)		$	(1.2	)
Adjusted net loss attributable to limited partners		$	(2.3	)		$	(0.3	)		$	(5.1	)		$	(1.2	)
Weighted average units (millions)			45.2				45.2				45.2				45.2
Adjusted net loss per limited partner unit (dollars)		$	(0.06	)		$	-			$	(0.12	)		$	(0.02	)

 

Midcoast Operating		Three months ended								Six months ended
Gathering, Processing and Transportation		June 30,								June 30,
(unaudited; dollars in millions)		2015				2014 (1)				2015				2014 (1)
Operating income (loss)		$	(228.1	)		$	0.1			$	(235.7	)		$	(4.8	)
Noncash derivative fair value losses			29.6				10.3				45.5				10.0
Option premium amortization			(3.3	)			(0.8	)			(4.7	)			(1.7	)
Goodwill impairment			206.1				-				206.1				-
Adjusted operating income		$	4.3			$	9.6			$	11.2			$	3.5

 

(1)

Prior year adjusted operating income was revised to reclassify make-up rights adjustment to other income.

 

Midcoast Operating		Three months ended								Six months ended
Logistics and Marketing		June 30,								June 30,
(unaudited; dollars in millions)		2015				2014				2015				2014
Operating income (loss)		$	(29.3	)		$	(3.5	)		$	(48.3	)		$	13.7
Noncash derivative fair value losses (gains)			(5.1	)			0.5				14.1				(3.8	)
Goodwill impairment			20.4				-				20.4				-
Asset impairment			12.3				-				12.3				-
Adjusted operating income (loss)		$	(1.7	)		$	(3.0	)		$	(1.5	)		$	9.9

  

 

Adjusted EBITDA

 

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is used as a supplemental financial measurement to assess liquidity and the ability to generate cash sufficient to pay interest costs and make cash distributions to unitholders. The following reconciliation of net cash provided by operating activities to adjusted EBITDA is provided because EBITDA is not a financial measure recognized under generally accepted accounting principles. The table also references “MOLP Adjusted EBITDA, inclusive of other cash items”, representing total cash flow generated by Midcoast Operating.

 

Midcoast Operating		Three months ended								Six months ended
Adjusted EBITDA		June 30,								June 30,
(unaudited; dollars in millions)		2015				2014				2015				2014
Net cash provided by (used in) operating activities		$	(29.0	)		$	(37.5	)		$	139.2			$	176.3
Changes in operating assets and liabilities,
net of cash acquired			70.9				77.4				(53.1	)			(93.4	)
Income tax expense (benefit)			(3.1	)			0.8				(2.3	)			1.8
Interest expense			7.2				2.8				13.9				6.1
Option premium amortization			(3.3	)			(0.7	)			(4.7	)			(1.7	)
Other			5.8				1.0				4.3				-
Adjusted EBITDA attributable to EEP retained interest			(24.0	)			(27.1	)			(48.4	)			(55.5	)
Adjusted EBITDA attributable to MEP (1)			24.5				16.7				48.9				33.6
Adjusted EBITDA attributable to EEP retained interest			24.0				27.1				48.4				55.5
Other			0.9				0.9				2.6				2.1
Adjusted EBITDA attributable to MOLP (1)		$	49.4			$	44.7			$	99.9			$	91.2
G&A abatement			6.2				6.3				12.5				12.6
Texas Express distributions in excess of equity earnings			4.0				9.7				7.0				9.7
MOLP adjusted EBITDA, inclusive of other cash items (1)		$	59.6			$	60.7			$	119.4			$	113.5

 

(1)

Adjusted EBITDA attributable to MEP is inclusive of public partnership expenses. However, Adjusted EBITDA attributable to MOLP is not inclusive of public partnership expenses attributable to MEP.

 

 

Midcoast Partners		Three months ended								Six months ended
Adjusted EBITDA		June 30,								June 30,
(unaudited; dollars in millions)		2015				2014				2015				2014
Net cash provided by (used in) operating activities		$	(29.0	)		$	(37.5	)		$	139.2			$	176.3
Changes in operating assets and liabilities, net of cash acquired			70.9				77.4				(53.1	)			(93.4	)
Income tax expense (benefit)			(3.1	)			0.8				(2.3	)			1.8
Interest expense			7.2				2.8				13.9				6.1
Option premium amortization			(3.3	)			(0.7	)			(4.7	)			(1.7	)
Other			5.8				1.0				4.3				-
Adjusted EBITDA attributable to EEP retained interest			(24.0	)			(27.1	)			(48.4	)			(55.5	)
Adjusted EBITDA attributable to MEP			24.5				16.7				48.9				33.6
Maintenance capital expenditures			(4.6	)			(5.0	)			(7.7	)			(9.9	)
Income tax expense (1)			2.0				(0.8	)			1.2				(1.8	)
Interest expense (1)			(7.8	)			(2.8	)			(14.5	)			(6.1	)
G&A abatement			3.2				2.5				6.5				4.9
Texas Express distribution in excess of equity earnings			2.1				3.8				3.6				3.8
Distributable cash flow		$	19.4			$	14.4			$	38.0			$	24.5

  

(1)

Effective for 2015, distributable cash flow will reflect the accrued amounts for interest and taxes. Prior periods reflected such amounts on a cash basis.

 

About Midcoast Energy Partners, L.P.

 

Midcoast Energy Partners, L.P. (NYSE: MEP), is a limited partnership formed by EEP to serve as EEP's primary vehicle for owning and growing its natural gas and natural gas liquids (NGLs) midstream business in the United States. Our assets consist of a 51.6 percent controlling interest in Midcoast Operating, L.P., a Texas limited partnership that owns a network of natural gas and NGL gathering and transportation systems, natural gas processing and treating facilities and NGL fractionation facilities primarily located in Texas and Oklahoma. Midcoast Operating also owns and operates natural gas, condensate and NGL logistics and marketing assets that primarily support its gathering, processing and transportation business. Through our ownership of Midcoast Operating's general partner, we control, manage and operate these systems.

 

EEP owns 100 percent of Midcoast Holdings, LLC, the general partner of Midcoast Partners and holds an approximate 54 percent interest in Midcoast Partners. EEP owns and operates a diversified portfolio of crude oil and, through Midcoast Partners, natural gas transportation systems in the United States. Its principal crude oil system is the largest pipeline transporter of growing oil production from western Canada and the North Dakota Bakken formation. EEP is recognized by Forbes as one of the 100 Most Trustworthy Companies in America.

 

Forward Looking Statements

 

This news release 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.

 

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 the year ended December 31, 2014 and any subsequently filed Quarterly Report on Form 10-Q, or Current Report on Form 8-K, which filings are available to the public at the SEC's website (www.sec.gov).

 

 

FOR FURTHER INFORMATION PLEASE CONTACT:

 

Sanjay Lad, CFA	Terri Larson, APR
Investment Community	Media
Toll-free: (855) MEP-7222 or (855) 637-7222	Telephone: (877) 496-8142
E-mail: [email protected]	E-mail: [email protected]

 

# # #

 

 

Exhibit 99.2

 

MIDCOAST ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

 

		For the three months								For the six months
		ended June 30,								ended June 30,
		2015				2014				2015				2014
		(unaudited; in millions, except per unit amounts)
Operating revenues:
Operating revenue		$	751.6			$	1,329.9			$	1,603.3			$	2,919.6
Operating revenue - affiliate			28.5				66.9				50.3				124.1
			780.1				1,396.8				1,653.6				3,043.7
Operating expenses:
Cost of natural gas and natural gas liquids			647.5				1,221.4				1,408.7				2,679.9
Cost of natural gas and natural gas liquids - affiliate			23.1				38.4				41.0				68.6
Operating and maintenance			44.7				56.6				82.9				111.2
Operating and maintenance - affiliate			24.8				27.6				50.0				54.7
General and administrative			1.1				1.6				3.0				3.5
General and administrative - affiliate			17.8				20.0				36.9				45.3
Goodwill impairment			226.5				-				226.5				-
Asset impairment			12.3				-				12.3				-
Depreciation and amortization			40.8				36.8				79.1				73.8
			1,038.6				1,402.4				1,940.4				3,037.0
Operating income (loss)			(258.5	)			(5.6	)			(286.8	)			6.7
Interest expense, net			7.2				2.8				13.9				6.1
Equity in earnings of joint ventures			5.9				2.3				11.6				1.0
Other income			0.2				0.1				0.2				0.1
Income (loss) before income tax expense (benefit)			(259.6	)			(6.0	)			(288.9	)			1.7
Income tax expense (benefit)			(3.1	)			0.8				(2.3	)			1.8
Net loss			(256.5	)			(6.8	)			(286.6	)			(0.1	)
Less: Net income (loss) attributable to noncontrolling interest			(120.0	)			(2.2	)			(130.1	)			4.1
Net loss attributable to general and limited partner ownership
interest in Midcoast Energy Partners, L.P.		$	(136.5	)		$	(4.6	)		$	(156.5	)		$	(4.2	)
Net loss attributable to limited partner ownership interest		$	(133.7	)		$	(4.5	)		$	(153.3	)		$	(4.1	)
Net loss per limited partner unit (basic and diluted)		$	(2.96	)		$	(0.09	)		$	(3.39	)		$	(0.09	)
Weighted average limited partner units outstanding			45.2				45.2				45.2				45.2

 

 

MIDCOAST ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the six months
		ended June 30,
		2015				2014
		(unaudited; in millions)
Cash provided by operating activities:
Net loss		$	(286.6	)		$	(0.1	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			79.1				73.8
Goodwill impairment			226.5				-
Derivative fair value net losses			59.6				6.2
Inventory market price adjustments			5.3				3.3
Asset impairment			12.3				-
Distributions from investment in joint ventures			11.6				1.0
Equity earnings from investment in joint ventures			(11.6	)			(1.0	)
Deferred income taxes			(3.0	)			0.9
Other			1.2				2.1
Changes in operating assets and liabilities, net of acquisitions:
Receivables, trade and other			14.7				18.1
Due from General Partner and affiliates			46.0				622.0
Accrued receivables			128.1				58.8
Inventory			(10.6	)			(68.1	)
Current and long-term other assets			(21.2	)			(5.5	)
Due to General Partner and affiliates			8.7				(484.2	)
Accounts payable and other			(21.2	)			(51.5	)
Environmental liabilities			-				0.2
Accrued purchases			(97.0	)			1.4
Interest payable			-				0.5
Property and other taxes payable			(2.7	)			(1.6	)
Net cash provided by operating activities			139.2				176.3
Cash used in investing activities:
Additions to property, plant and equipment			(110.0	)			(110.3	)
Changes in restricted cash			29.1				49.0
Acquisitions			(44.0	)			-
Investment in joint ventures			(2.5	)			(28.1	)
Distributions from investment in joint ventures in excess of cumulative earnings			6.7				17.7
Other			(0.7	)			-
Net cash used in investing activities			(121.4	)			(71.7	)
Cash provided by financing activities:
Net borrowings under credit facility			50.0				140.0
Distributions to partners			(31.8	)			(22.1	)
Contributions from noncontrolling interest			37.3				69.8
Distributions to noncontrolling interest			(45.8	)			(61.2	)
Net cash provided by financing activities			9.7				126.5
Net increase in cash and cash equivalents			27.5				231.1
Cash and cash equivalents at beginning of year			-				4.9
Cash and cash equivalents at end of period		$	27.5			$	236.0

 

 

MIDCOAST ENERGY PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

		June 30,				December 31,
		2015				2014
ASSETS		(unaudited; in millions)
Current assets:
Cash and cash equivalents		$	27.5			$	-
Restricted cash			29.7				42.8
Receivables, trade and other, net of allowance for doubtful accounts of $1.5 million
and $1.8 million, respectively, at June 30, 2015 and December 31, 2014			0.6				15.6
Due from General Partner and affiliates			8.3				49.7
Accrued receivables			101.5				229.6
Inventory			86.8				81.5
Other current assets			154.9				178.1
			409.3				597.3
Property, plant and equipment, net			4,218.4				4,159.7
Goodwill			-				226.5
Intangible assets, net			280.9				247.7
Equity investment in joint ventures			376.2				380.6
Other assets, net			100.3				142.3
Total assets		$	5,385.1			$	5,754.1
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Due to General Partner and affiliates		$	37.3			$	41.1
Accounts payable and other			83.3				113.8
Accrued purchases			278.2				375.2
Property and other taxes payable			18.2				20.9
Interest payable			5.0				5.0
			422.0				556.0
Long-term debt			810.0				760.0
Other long-term liabilities			40.7				41.5
Total liabilities			1,272.7				1,357.5
Commitments and contingencies
Partners’ capital:
Class A common units (22,610,056 authorized and issued at June 30, 2015 and
December 31,2014)			541.9				634.2
Subordinated units (22,610,056 authorized and issued at June 30, 2015 and
December 31, 2014)			1,081.7				1,174.0
General Partner units (922,859 authorized and issued at June 30, 2015 and
December 31, 2014)			44.1				47.8
Accumulated other comprehensive income			6.0				11.6
Total Midcoast Energy Partners, L.P. partners’ capital			1,673.7				1,867.6
Noncontrolling interest			2,438.7				2,529.0
Total partners’ capital			4,112.4				4,396.6
		$	5,385.1			$	5,754.1

 

 

NET INCOME PER LIMITED PARTNER AND GENERAL PARTNER INTEREST

 

We allocate our net income among our General Partner and limited partners using the two-class method. Under the two-class method, we allocate our net income to our limited partners, our General Partner and the holders of our IDRs in accordance with the terms of our partnership agreement. We also allocate any earnings in excess of distributions to our limited partners, our General Partner and the holders of the IDRs in accordance with the terms of our partnership agreement. We allocate any distributions in excess of earnings for the period to our General Partner and our limited partners based on their respective proportionate ownership interests in us, after taking into account distributions to be paid with respect to the IDRs, as set forth in our partnership agreement.

 

Distribution Targets		Portion of Quarterly Distribution Per Unit		Percentage Distributed to Limited Partners		Percentage Distributed to General Partner
Minimum Quarterly Distribution		Up to $0.3125		98%		2%
First Target Distribution		> $0.3125 to $0.359375		98%		2%
Second Target Distribution		> $0.359375 to $0.390625		85%		15%
Third Target Distribution		> $0.390625 to $0.468750		75%		25%
Over Third Target Distribution		In excess of $0.468750		50%		50%

 

  We determined basic and diluted net income (loss) per limited partner unit as follows:

                                

		For the three months								For the six months
		ended June 30,								ended June 30,
		2015				2014				2015				2014
		(in millions, except per unit amounts)
Net loss		$	(256.5	)		$	(6.8	)		$	(286.6	)		$	(0.1	)
Less: Net income (loss) attributable to noncontrolling interest			(120.0	)			(2.2	)			(130.1	)			4.1
Net loss attributable to general and limited partner
interests in Midcoast Energy Partners, L.P.			(136.5	)			(4.6	)			(156.5	)			(4.2	)
Less distributions:
Total distributed earnings to our General Partner			(0.3	)			(0.3	)			(0.6	)			(0.6	)
Total distributed earnings to our limited partners			(16.0	)			(14.7	)			(31.7	)			(28.8	)
Total distributed earnings			(16.3	)			(15.0	)			(32.3	)			(29.4	)
Overdistributed earnings		$	(152.8	)		$	(19.6	)		$	(188.8	)		$	(33.6	)
Weighted average limited partner units outstanding			45.2				45.2				45.2				45.2
Basic and diluted earnings per unit:
Distributed earnings per limited partner unit (1)		$	0.35			$	0.33			$	0.70			$	0.64
Overdistributed earnings per limited partner unit (2)			(3.31	)			(0.42	)			(4.09	)			(0.73	)
Net loss per limited partner unit (basic and diluted)		$	(2.96	)		$	(0.09	)		$	(3.39	)		$	(0.09	)

 

(1)

Represents the total distributed earnings to limited partners divided by the weighted average number of limited partner interests outstanding for the period.

(2)

Represents the limited partners' share (98%) of distributions in excess of earnings divided by the weighted average number of limited partner interests outstanding for the period and underdistributed earnings allocated to the limited partners based on the distribution waterfall that is outlined in our partnership agreement.

 

 

SEGMENT INFORMATION

 

Our business is divided into operating segments, defined as components of the enterprise, about which financial information is available and evaluated regularly by our Chief Operating Decision Maker, collectively comprised of our senior management, in deciding how resources are allocated and performance is assessed.

 

Each of our reportable segments is a business unit that offers different services and products that are managed separately, since each business segment requires different operating strategies. We conduct our business through two distinct reporting segments:

 

•

Gathering, Processing and Transportation; and

•

Logistics and Marketing.

 

The following tables present certain financial information relating to our business segments and corporate activities:

 

		For the three months ended June 30, 2015
		Gathering, Processing and Transportation				Logistics and Marketing				Corporate (1)				Total
		(in millions)
Total revenue		$	401.4			$	689.2			$	-			$	1,090.6
Less: Intersegment revenue			295.3				15.2				-				310.5
Operating revenue			106.1				674.0				-				780.1
Cost of natural gas and natural gas liquids			19.9				650.7				-				670.6
Segment gross margin			86.2				23.3				-				109.5
Operating and maintenance			55.0				14.3				0.2				69.5
General and administrative			15.0				3.0				0.9				18.9
Goodwill impairment			206.1				20.4				-				226.5
Asset impairment			-				12.3				-				12.3
Depreciation and amortization			38.2				2.6				-				40.8
			314.3				52.6				1.1				368.0
Operating loss			(228.1	)			(29.3	)			(1.1	)			(258.5	)
Interest expense, net			-				-				7.2				7.2
Other income			5.9	(2)			-				0.2				6.1
Loss before income tax benefit			(222.2	)			(29.3	)			(8.1	)			(259.6	)
Income tax benefit			-				-				(3.1	)			(3.1	)
Net loss		$	(222.2	)		$	(29.3	)		$	(5.0	)		$	(256.5	)
Less: Net loss attributable to noncontrolling interest			-				-				(120.0	)			(120.0	)
Net income (loss) attributable to general and limited partner
ownership interests in Midcoast Energy Partners, L.P.		$	(222.2	)		$	(29.3	)		$	115.0			$	(136.5	)

 

(1)

Corporate consists of interest expense, interest income, noncontrolling interest and other costs such as income taxes, which are not allocated to the business segments.

(2)

Other income for our Gathering, Processing and Transportation segment includes our equity investment in the Texas Express NGL system.

 

 

		For the three months ended June 30, 2014
		Gathering, Processing and Transportation				Logistics and Marketing				Corporate (1)				Total
		(in millions)
Total revenue		$	694.0			$	1,255.8			$	-			$	1,949.8
Less: Intersegment revenue			524.6				28.4				-				553.0
Operating revenue			169.4				1,227.4				-				1,396.8
Cost of natural gas and natural gas liquids			50.1				1,209.7				-				1,259.8
Segment gross margin			119.3				17.7				-				137.0
Operating and maintenance			67.2				16.8				0.2				84.2
General and administrative			17.1				2.5				2.0				21.6
Depreciation and amortization			34.9				1.9				-				36.8
			119.2				21.2				2.2				142.6
Operating income (loss)			0.1				(3.5	)			(2.2	)			(5.6	)
Interest expense, net			-				-				2.8				2.8
Other income			2.3	(2)			-				0.1				2.4
Income (loss) before income tax expense			2.4				(3.5	)			(4.9	)			(6.0	)
Income tax expense			-				-				0.8				0.8
Net income (loss)			2.4				(3.5	)			(5.7	)			(6.8	)
Less: Net loss attributable to noncontrolling interest			-				-				(2.2	)			(2.2	)
Net income (loss) attributable to general and limited partner
ownership interests in Midcoast Energy Partners, L.P.		$	2.4			$	(3.5	)		$	(3.5	)		$	(4.6	)

 

(1)

Corporate consists of interest expense, interest income, noncontrolling interest and other costs such as income taxes, which are not allocated to the business segments.

(2)

Other income for our Gathering, Processing and Transportation segment includes our equity investment in the Texas Express NGL system.

 

 

		As of and for the six months ended June 30, 2015
		Gathering, Processing and Transportation				Logistics and Marketing				Corporate (1)				Total
		(in millions)
Total revenue		$	786.8			$	1,454.5			$	-			$	2,241.3
Less: Intersegment revenue			562.6				25.1				-				587.7
Operating revenue			224.2				1,429.4				-				1,653.6
Cost of natural gas and natural gas liquids			41.8				1,407.9				-				1,449.7
Segment gross margin			182.4				21.5				-				203.9
Operating and maintenance			105.8				26.9				0.2				132.9
General and administrative			31.3				6.0				2.6				39.9
Goodwill impairment			206.1				20.4				-				226.5
Asset impairment			-				12.3				-				12.3
Depreciation and amortization			74.9				4.2				-				79.1
			418.1				69.8				2.8				490.7
Operating loss			(235.7	)			(48.3	)			(2.8	)			(286.8	)
Interest expense, net			-				-				13.9				13.9
Other income			11.6	(2)			-				0.2				11.8
Loss before income tax benefit			(224.1	)			(48.3	)			(16.5	)			(288.9	)
Income tax benefit			-				-				(2.3	)			(2.3	)
Net loss			(224.1	)			(48.3	)			(14.2	)			(286.6	)
Less: Net loss attributable to noncontrolling interest			-				-				(130.1	)			(130.1	)
Net income (loss) attributable to general and limited partner
ownership interests in Midcoast Energy Partners, L.P.		$	(224.1	)		$	(48.3	)		$	115.9			$	(156.5	)
Total assets		$	4,973.1	(3)		$	309.4			$	102.6			$	5,385.1
Capital expenditures (excluding acquisitions)		$	101.2			$	3.0			$	0.1			$	104.3

 

(1)

Corporate consists of interest expense, interest income, noncontrolling interest and other costs such as income taxes, which are not allocated to the business segments.

(2)

Other income for our Gathering, Processing and Transportation segment includes our equity investment in the Texas Express NGL system.

(3)

Totals assets for our Gathering, Processing and Transportation segment includes $376.2 million for our equity investment in the Texas Express NGL system.

 

 

		As of and for the six months ended June 30, 2014
		Gathering, Processing and Transportation				Logistics and Marketing				Corporate (1)				Total
		(in millions)
Total revenue		$	1,419.0			$	2,728.8			$	-			$	4,147.8
Less: Intersegment revenue			1,046.3				57.8				-				1,104.1
Operating revenue			372.7				2,671.0				-				3,043.7
Cost of natural gas and natural gas liquids			134.9				2,613.6				-				2,748.5
Segment gross margin			237.8				57.4				-				295.2
Operating and maintenance			131.6				34.1				0.2				165.9
General and administrative			41.1				5.7				2.0				48.8
Depreciation and amortization			69.9				3.9				-				73.8
			242.6				43.7				2.2				288.5
Operating income (loss)			(4.8	)			13.7				(2.2	)			6.7
Interest expense, net			-				-				6.1				6.1
Other income			1.1	(2)			-				-				1.1
Income (loss) before income tax expense			(3.7	)			13.7				(8.3	)			1.7
Income tax expense			-				-				1.8				1.8
Net income (loss)			(3.7	)			13.7				(10.1	)			(0.1	)
Less: Net income attributable to noncontrolling interest			-				-				4.1				4.1
Net income (loss) attributable to general and limited partner
ownership interests in Midcoast Energy Partners, L.P.		$	(3.7	)		$	13.7			$	(14.2	)		$	(4.2	)
Total assets		$	4,917.7	(3)		$	394.0			$	330.1			$	5,641.8
Capital expenditures (excluding acquisitions)		$	99.9			$	5.1			$	1.6			$	106.6

 

(1)

Corporate consists of interest expense, interest income, noncontrolling interest and other costs such as income taxes, which are not allocated to the business segments.

(2)

Other income for our Gathering, Processing and Transportation segment includes our equity investment in the Texas Express NGL system.

(3)

Totals assets for our Gathering, Processing and Transportation segment includes $381.6 million for our equity investment in the Texas Express NGL system.

 

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