Enterprise Products Partners L.P. (EPD)

EPD 
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Enterprise Products Partners LP (EPD)

Q2 2010 Earnings Call

July 26, 2010 9:00 AM ET

Executives

Randy Burkhalter – Vice President, Investor Relations

Randy Fowler –Executive Vice President and CFO

Jim Teague – EVP and Chief Commercial Officer

Mike Creel – President and CEO

Chris Skoog - Senior Vice President, EPGP

Mark Hurley - Senior Vice President, Crude Oil & Offshore, EPGP

Bill Ordemann - Executive Vice President, EPGP and Chief Operating Officer

Analysts

Darren Horowitz – Raymond James

Steve Maresca – Morgan Stanley

Xin liu – JPMorgan

Ted Durbin – Goldman Sachs

John Tysseland – Citi

Ross Payne – Wells Fargo

Sharon Lui – Wells Fargo

Presentation

Operator

Welcome to the Enterprise Products Partners and Duncan Energy Partners Second Quarter 2010 Earnings Conference Call. Thank you for standing by. At this time, all participants are in a listen-only mode. Today’s call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to introduce Mr. Randy Burkhalter, Vice President of Investor Relations. You may begin.

Randy Burkhalter

Thank you, Jessie. Good morning. And welcome to the Enterprise Products Partners and Duncan Energy Partners joint conference call to discuss second quarter earnings. Our speakers today will be Randy Fowler, Executive Vice President and Chief Financial Officer, the General Partner of Enterprise; and President and CEO, the General Partner of Duncan Energy Partners; and Jim Teague, Executive Vice President and Chief Commercial Officer.

The Enterprise portion of the call will begin with a few comments from Randy, filling in for Mike Creel, who is out of the office but listening in on the call, followed by Jim to discuss commercial operations and then Randy will wrap up with a financial discussion.

Randy will then make a few comments about the quarterly performance of Duncan Energy Partners before we open the call up for any questions. Also in attendance today are other members of our senior management team.

During this call we will make forward-looking statements within the meaning of Section 21E 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 management of both Enterprise and Duncan.

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 SEC 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’d like to turn the call over to Randy Fowler.

Randy Fowler

Hi. Thanks, Randy. Good morning. We are pleased to report solid results again this quarter supported by increased gross operating margin from our NGL segment, Petrochemical & Refined Product segment and offshore segment.

Our NGL business continues to post solid results, benefiting this quarter from record equity NGL production, strong natural gas processing margins, higher NGL transportation and fee-based gas processing volumes.

The improved results from the petrochemical business were primarily a result of increased demand for polymer grade propylene, which led to higher volumes and improved margins. We also had record onshore natural gas transportation volumes and higher offshore crude oil transportation volumes. This performance resulted in 18% year-over-year increase in gross operating margin after adjusting second quarter 2009 results for the $68 million charge for exiting the TOPS joint venture.

Based on continued strong performance, we announced the 24th consecutive increase in our quarterly distribution rate this month, increasing it to $0.575 per unit, or $2.30 on an annualized basis. This is a 5.5% increase over the distribution declared with respect to the second quarter of 2009.

Enterprise generated $532 million of distributable cash flow, which provided 1.3 times coverage of the distribution to the limited partners for last quarter. One of our important financial goals is also to retain a portion of our distributable cash flow to reinvest in the growth of the partnership. This quarter we retained $100 million or 19% of total distributable cash flow and for the first six months of this year we retained $256 million.

Now, I’d like to take a few minutes to discuss some segment highlights. The largest increase in gross operating margin was from our NGL Pipelines & Services business, which reported gross operating margin of $441 million this quarter, up 21% from the second quarter 2009.

Fundamentals continue to be strong for this segment, which benefited from higher equity NGL production and gas processing margins, primarily from our Rocky Mountain processing plants, increased transportation volumes on most of our pipelines and higher tariffs on Dixie and the Tri-States pipeline.

Our NGL marketing business had higher sales margins as petrochemical demand for NGL feed stocks remained strong. Exports of NGLs, primarily propane, averaged 93,000 barrels per day this quarter compared to 35,000 barrels per day in the second quarter of last year, as pricing differentials remained favorable between the United States and other regions of the world.

Gross operating margin for the onshore natural gas pipeline and services segment decreased $14 million from the second quarter of 2009 primarily due to our natural gas marketing business, which had a non-cash mark-to-market loss swing of approximately $17 million the second quarter of this year, compared to second quarter of last year, from a $5 million gain last year to approximately a $12 million loss this year associated with financial transactions for hedging our natural gas transport book.

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