Enterprise Products Partners L.P. (EPD)

EPD 
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Enterprise Products Partners L.P. (EPD)

Q4 2009 Earnings Call Transcript

February 1, 2010 9:00 am ET

Executives

Randy Burkholter – Vice President, Investor Relations

Mike Creel – President and CEO

Jim Teague – EVP and Chief Commercial Officer

Randall Fowler – EVP and CFO

Hank Bachman – President and CEO of Duncan Energy Partners

Dan Duncan – Chairman

Analysts

Mark Reichman – Madison Williams

Brian Zarin [ph] – Barclays Capital

Steven Moresco [ph] – Morgan Stanley

Darren Horowitz – Raymond James

Michael Blum – Wells Fargo

Sharon Lui – Wells Fargo

John Edwards – Morgan Keegan

Ross Payne – Wells Fargo

Presentation

Operator

Welcome to the Enterprise Products Partners and Duncan Energy Partners fourth quarter earnings conference call. (Operator Instructions) I would now like to introduce, Mr. Randy Burkholter, Vice President of Investor Relations. You may begin.

Randy Burkholter

Thank you, Celeste. Good morning and welcome to the Enterprise Products Partners and Duncan Energy Partners conference call to discuss fourth-quarter earnings. Our speakers today will be Mike Creel, President and CEO of Enterprise’s general partner; followed by Jim Teague, Executive Vice President and Chief Commercial Officer; then Randy Fowler, our Executive Vice President and Chief Financial Officer will follow Jim. And then Hank Bachman, President and CEO of Duncan Energy Partners general partner will be our last speaker. Also in attendance for the call today is Dan Duncan, our Chairman, as well as other members of our senior management team. Afterwards, we will open the call up for your questions.

During this call, we will make forward-looking statements within the meaning of section 21-E of the Securities and Exchange Act of 1934 based on the beliefs of the company as well as assumptions made by and information currently available to Enterprise's management team. Although management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct.

Please refer to our latest filings with the Securities and Exchange Commission for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. And with that, I'll turn the call over to Mike Creel.

Mike Creel

Thanks Randy. Good morning and thanks for joining us today. Being mindful of your time and your interest in the current business environment, as well as our growth opportunities, we're going to limit our discussion of items that are covered in detail in our earnings press release this morning. If you have questions on these items, obviously we will be happy to address them in the Q&A.

We are pleased to report another quarter of strong operating and financial results supported by record NGL, crude oil and petrochemical transportation volumes. Record equity NGL production and fractionation volumes and increased natural gas transportation volumes.

We continue to benefit from our large geographical footprint and our diverse portfolio of integrated businesses that generated record gross operating margin and distributable cash flow for 2009. Based on our continued strong performance, the board approved an increase in the quarterly cash distribution rate to $0.56 per unit, a 5.7% increase over the rate paid with respect to the fourth quarter of 2008 and our 22nd consecutive quarterly distribution increase.

Enterprise generated distributable cash flow of $570 million in the fourth quarter of 2009 providing 1.5 times coverage of the distribution declared with respect to that quarter. We retained $164 million or 29% of the distributable cash flow for the quarter. Distributable cash flow for the year was a record $1.6 billion and provided 1.2 times coverage of the $2.20 per unit declared with respect to 2009 allowing us to retain $264 million for the full year for reinvestment in our business.

Since our IPO in 1998, we have retained over $1.1 billion or approximately 15% of the partnership’s distributable cash flow. This compares to $783 million paid to our general partner over that same period. I'm not aware of any other MLP that has retained more cash than they paid to their general partner over such an extended period of time. We had record gross operating margin of $865 million in the fourth quarter of 2009. This is a $214 million or 33% increase over the fourth quarter of 2008.

Our NGL pipelines and services business was responsible for $157 million of this increase. This segment benefited from record NGL pipeline and fractionation volumes and record equity NGL production. Higher natural gas processing margins increased demand for NGLs as petrochemical feedstock over more costly crude oil derivates, profits from NGL sales that were completed in the fourth quarter and the settlement of the Mid-America rate case and the demand for our NGL export facilities were among the key drivers.

Fundamentals continued to be strong for this segment as we began 2010. Industry NGL inventories are low particularly ethane, and demand continues to be high resulting in strong natural gas processing margins. Jim Teague will discuss this in more detail a bit later. Gross operating margin for the onshore natural gas pipeline in the services segment declined $27 million for the fourth quarter of 2008, primarily due to our natural gas marketing business and lower gross operating margin from our San Juan, Val Verde and Carlsbad systems due to lower volumes and higher operating expenses.

Our natural gas marketing business was primarily impacted by demand charges for transportation and storage capacity in combination with unusually tight bases of natural gas prices across the country. Some of this will be recouped in the first quarter of 2010 as we deliver gas volumes we own from storage and recognize profits. Our Texas Intrastate System benefited from the Sherman Extension being in full service for the quarter, but this was partially offset by lower pipeline volumes.

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