Enterprise Products Partners L.P.
) reported third quarter 2012 adjusted earnings per limited
partner unit of 68 cents, which surpassed the Zacks Consensus
Estimate of 60 cents and were 23.6% higher than 55 cents a year
ENTERPRISE PROD (EPD): Free Stock Analysis
PLAINS ALL AMER (PAA): Free Stock Analysis
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Transportation of more crude, natural gas and other commodities
through its pipelines led to the improvement. Enterprise
transported 4,299 thousand barrels per day of natural gas liquids
(NGL), crude oil, refined products and petrochemical products,
representing a 6% increase on a year-over-year basis. Natural gas
pipeline volumes also increased almost 12% in the third quarter.
A drop in total costs and expenses (down almost 9% year over
year) also supported growth in the quarter.
Quarterly distribution at Enterprise upped 6.1% year over year to
65 cents per common unit, or $2.60 per unit on an annualized
basis. Distributable cash flow of $743 million provided coverage
of 1.3x. The partnership retained $177 million in cash flow,
thereby reducing its financing needs.
However, revenues in the quarter declined nearly 8% year over
year to $10,468.7 million and failed to meet the Zacks Consensus
Estimate of $11,409.0 million. The underperformance was mainly
due to lower commodity prices, partly compensated by higher
Gross operating income in the NGL Pipeline & Services segment
climbed 12.5% year over year to $615.8 million. Gross operating
income in the natural gas processing business improved 1.1% on
the back of higher margins for NGLs and higher fee-based natural
gas processing volumes. The partnership's NGL pipeline and
storage business' gross operating margin spiked 33.6% year over
year. For the NGL fractionation business, gross income surged
27.8% year over year to $69 million, aided by higher revenues and
volumes from its fifth NGL fractionator that came online in
October last year.
Onshore Natural Gas Pipeline and Services' gross operating income
increased 17.6% year over year to $183.5 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 74.5% year over year to $117.6 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 South Texas crude oil
pipeline system and the Seaway Crude Oil Pipeline.
Gross operating income in the Petrochemical & Refined Product
Services segment improved to $182.1 million in the quarter from
the year-earlier level of $145.6 million.
However, Enterprise's Offshore Pipelines & Services' gross
operating income was $41 million in the quarter, substantially
lower than $54 million a year ago. The decrease was due to lower
demand fee revenues and lower volumes.
During the quarter, the partnership spent $1.1 billion, including
$102 million of sustaining capital expenditures. Total debt
principal outstanding at the end of the quarter was $15,917.7
million (up 5.7% year over year).
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
6.1% 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 over $4 billion. These projects include -
the first two processing trains at its Yoakum natural gas plant,
the fifth NGL fractionator at Mont Belvieu, the extension of the
Acadian Haynesville and the Seaway crude oil pipeline reversal.
The Eagle Ford natural gas, NGL and crude oil pipelines are
expected to have increased volumes over the coming years. These
projects are likely to boost cash flow in the coming years.
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#3 Rank
for the short term, which is equivalent to a Hold rating and we
maintain our long-term Neutral recommendation for Enterprise