Enterprise Products Partners L.P.
) reported fourth-quarter 2012 adjusted earnings per limited
partner unit of 71 cents, which surpassed the Zacks Consensus
Estimate of 66 cents and were a cent higher than the year-ago
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For full-year 2012, adjusted earnings per limited partner unit
was $2.69, which beat the Zacks Consensus Estimate of $2.62 and
increased 20.6% from $2.23 in the prior year.
Transportation of more crude, natural gas and other commodities
through its pipelines led to the improvement. Enterprise
transported 4,505 thousand barrels per day of natural gas liquids
(NGL), crude oil, refined products and petrochemical products, up
12.7% on a year-over-year basis. A drop in total costs and
expenses (down more than 4% year over year) also supported growth
in the quarter.
Quarterly distribution at Enterprise increased 6.5% year over
year to 66 cents per common unit, or $2.64 per unit on an
annualized basis. Distributable cash flow of $886 million
provided coverage of 1.5x. The partnership retained $308 million
in cash flow, thereby reducing its financing needs.
However, revenues in the quarter decreased nearly 5% year over
year to $11,013.9 million and failed to meet the Zacks Consensus
Estimate of $11,835.0 million. The underperformance was mainly
due to lower natural gas liquids production and prices.
In 2012, revenues decreased 4% year over year to $42,524.9
million from $44,313.0 million in 2011 and came in below the
Zacks Consensus Estimate of $44,019 million.
Fourth Quarter Segmental Performance
Gross operating income in the NGL Pipeline & Services segment
dropped 0.5% year over year to $632.0 million. Gross operating
income in the natural gas processing business plunged 16.7%
mainly due to lower NGL prices as well as lower natural gas
processing margins. A decrease in equity NGL production from
Rocky Mountain, Permian Basin and East Texas natural gas
processing plants also contributed to the decline. The
partnership's NGL pipeline and storage business' gross operating
margin increased 29.4% year over year. For the NGL fractionation
business, gross income surged 18.8% year over year to $82
million, aided by higher revenues and volumes from its sixth NGL
fractionator that came online in Oct 2012.
Onshore Natural Gas Pipeline and Services' gross operating income
increased 5.5% year over year to $210.0 million. The pipeline
systems benefited from Texas Intrastate and Acadian Gas System.
Gross operating income from the Onshore Crude Oil Pipelines &
Services segment shot up significantly by 101.5% year over year
to $135.0 million in the reported quarter, primarily on higher
crude oil marketing and volume growth in all major onshore crude
oil pipelines of Enterprise. The segment also benefited from the
South Texas crude oil pipeline system as well as the Seaway Crude
Oil Pipeline and Cushing storage facility.
Gross operating income in the Petrochemical & Refined Product
Services segment improved to $142.7 million in the quarter from
the year-earlier level of $137.4 million.
However, Enterprise's Offshore Pipelines & Services' gross
operating income was $42 million in the quarter, lower than $59.6
million a year ago. The decrease was due to lower demand fee
revenues and lower volumes.
During the quarter, the partnership spent $1.2 billion, including
$84 million of sustaining capital expenditures. Total debt
principal outstanding at the end of the quarter was $16,179.3
million (up 11.7% year over year).
Enterprise expects about $350 million sustaining capital
expenditures for 2013.
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
6.5% 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.
Over the last one year, the partnership has commissioned several
projects worth around $3 billion. The projects completed during
the fourth quarter include the sixth NGL fractionator at Mont
Belvieu and the expansion of the natural gas and NGL pipeline
systems serving the Eagle Ford shale. The Eagle Ford natural gas,
NGL and crude oil pipelines are expected to increase volumes over
the coming years. Recently, the partnership commissioned the
third processing train at its Yoakum natural gas plant. These
projects are likely to boost cash flow in the coming years.
Seaway Crude Oil Pipeline Company LLC - a 50/50 joint venture
between the affiliates of Enterprise Products Partners and
) - manages the Seaway crude oil pipeline.
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 going forward. The partnership believes
that the projects will generate new sources of fee-based cash
flow that are expected to increase the percentage of its gross
operating margin attributable to fee-based operations from
approximately 73% in 2011 to approximately 80% in 2013.
However, Enterprise remains vulnerable to macro conditions and
unstable oil and gas prices, which in turn could hurt margins in
NGL, natural gas and other businesses. Hence, Enterprise, which
recently entered into a 50/50 joint venture with
Plains All American Pipeline, L.P.
) for a crude oil pipeline in South Texas, carries a Zacks Rank
) is another company in the oil and gas sector, which holds a
Zacks Rank #1 (Strong Buy) and is expected to perform better.