Enterprise Products Partners L.P. (NYSE:EPD)

CAPS Rating: 5 out of 5

A North American midstream energy company providing a range of services to producers and consumers of natural gas, natural gas liquids, crude oil, and certain petrochemicals.


Player Avatar TrackZacks (< 20) Submitted: 11/3/2011 5:52:44 PM : Outperform Start Price: $22.33 EPD Score: +6.28

Enterprise Prospers on Vol Growth
By: Zacks Equity Research
November 03, 2011

Enterprise Products Partners LP (EPD - Analyst Report) reported record third quarter 2011 results, fueled by natural gas, natural gas liquid (NGL) and crude oil production growth in the shale regions as well as strong demand for NGLs in the U.S. petrochemical industry and global markets. Earnings per limited unit of 55 cents surpassed the Zacks Consensus Estimate of 50 cents and grew a whopping 206% from 18 cents earnings a year ago.

Quarterly distribution at Enterprise increased 5.2% year over year to 61.25 cents per common unit, or $2.45 per unit on an annualized basis. Distributable cash flow of $856 million provided a solid coverage of 1.7x. The partnership retained $341 million in cash flow, thereby reducing its financing needs.

Revenues in the quarter increased 40% year over year to $11.3 billion.

Segmental Performance

Gross operating income in the NGL Pipeline & Services segment climbed nearly 38% year over year to $547.6 million. Gross operating income in the natural gas processing business increased 55% attributable to higher margins for NGLs and natural gas processing margins, and its NGL pipeline and storage business grew over 7% year over year. For the NGL fractionation business, gross income surged 42% year over year to $54 million aided by higher revenues from the Mont Belvieu facility.

Onshore Natural Gas Pipeline and Services’ gross operating income increased 1.2% year over year to $156.0 million. The pipeline systems benefited from Texas Intrastate, San Juan and Jonah natural gas gathering pipeline systems.

The gross operating income from the Onshore Crude Oil Pipelines & Services segment shot up nearly 93% year over year to $67.4 million in the reported quarter, primarily on higher crude oil marketing and volume growth on all major onshore crude oil pipelines of Enterprise, with the exception of the Seaway pipeline.

However, Enterprise’s Offshore Pipelines & Services’ gross operating income was $53.9 million in the quarter, substantially below the year-ago quarter’s level of $68.3 million. The decrease was due to suppressed exploration and development activity in the Gulf of Mexico related to federal regulatory issues.

Gross operating income in the Petrochemical & Refined Product Services segment dropped to $145.6 million in the quarter from the year-earlier level of $166.2 million.


During the quarter, the partnership spent $1.1 billion, including $81 million in sustaining capital expenditures. Interest expense was $189 million (down nearly 2% year over year) on average debt balance of $14.8 billion.


We believe Enterprise Products remains a core holding in a master limited partnership portfolio and focuses on projects that generate stable cash flow and contribute to its integrated value chain. While Enterprise increased its cash flow distribution by 5.2% in the reported quarter, it also deployed cash in various fee-based development projects that will likely generate operating cash flow to support its future distribution growth.

We are still optimistic on the partnership’s gas processing/NGL fractionation and expect higher profit margin from the petrochemical segment. Importantly, the integration of Duncan Energy Partners LP along with the Acadian Gas system extension will likely prove beneficial for the partnership.

Further, Enterprise Products partnership with Enbridge Energy Partners L.P. (EEP - Analyst Report) and Anadarko Petroleum Corporation (APC - Analyst Report) to build a new NGL pipeline called the Texas Express Pipeline, offers a comprehensive industry solution for addressing NGL transportation constraints that are currently limiting access to the largest domestic NGL market located along the Gulf Coast. The pipeline will originate from Skellytown, Texas in Carson County and extend about 580 miles to NGL fractionation and storage facilities in Mont Belvieu, Texas.

Given a broad and vertically integrated asset base, steady cash flow generation ability and financial strength for strategic growth, we believe Enterprise is well positioned to deliver an impressive total return versus pipeline peers Kinder Morgan Energy Partners L.P. (KMP - Analyst Report) and Enbridge Energy Partners going forward.

We maintain our long-term Neutral recommendation on Enterprise Products. However, Enterprise Products holds a Zacks #2 Rank, which is equivalent to a Buy rating for a period of one to three months.


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