Enterprise Products Partners L.P. (EPD)

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Enterprise Products Partners L.P. (EPD)

Q2 2008 Earnings Call

July 24, 2008 10:00 am ET


Randy Burkholter – Vice President, Investor Relations

Michael Creel – President, CEO

Randall Fowler – Chief Financial Officer

Richard Bachmann – CEO, Duncan Energy Partners

James Lytal – Executive Vice President

James Cisarik – Senior Vice President

Jim Guy

Dan L. Duncan - Chairman

A. J. Teague – Executive Vice President, Chief Commercial Officer

[Chris Goode]

William Ordeman – Executive Vice President, Chief Operating Officer


Mark Reichman – Sanders, Morris and Harris

Michael Bloom – Wachovia

Darren Horowitz – Raymond James

Sharon Lui – Wachovia

Brian Zeran – Lehman Brothers

Xin Liu – J.P. Morgan

John Edwards - Morgan, Keegan

Louis Shamie – Zimmer Lucas



Welcome to the Enterprise Products conference call to discuss earnings for the second quarter of 2008. (Operator Instructions) I would now like to introduce your first speaker, Mr. Randy Burkholter, Vice President of Investor Relations.

Randy Burkholter

Mike Creel, Enterprise's President and CEO will lead the call today followed by Randy Fowler, the company's Executive Vice President and CFO. Also included on the call today from Enterprise is Dan Duncan, our Chairman and Founder, as well as other members of our senior management team. Also, Hank Bachman will lead a discussion on our Duncan Energy Partners earnings today. Afterward 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. 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.

Michael Creel

We had another quarter of record operating and financial results supported by a strong performance by each of our business segments. As we noted in the press release, this is the third consecutive quarter for our pipeline to transport in excess of 2 million barrels per day of natural gas liquids and 8.5 trillion btu's per day of natural gas. Also for the third quarter in a row, we fractionated more than 400,000 barrels per day of natural gas liquids.

We benefited this quarter from volume in cash flows related to new assets and expansions we completed in the last 12 months. The Meeker and Pioneer gas processing facilities which were completed in the fourth quarter of last year and the first quarter of this year respectively, contributed about $75 million to gross operating margin this quarter and the Hobbs and GL fractionator completed in the third quarter of last year generated $9 million in gross operating margin this quarter.

Gross operating margins from the Mid America/Seminole NGL pipelines was $77 million this quarter, a 61% increase over the second quarter last year, driven in part by the 50,000 barrel per day expansion of the Rocky Mountain leg in the Mid America pipeline which was completed late last year. Despite being down, our operating had reduced volumes for 66 days during the quarter due to repairs, Independence Hub and Trail contributed $12 million of gross operating margin this quarter.

These strong operating results underscore the benefit of our geographic and business diversification especially since gross operating margins this quarter was $52 million lower than it otherwise would have been due to lost opportunity from the down time and repair expenses associated with the Independence project and the Pioneer gas processing plant.

About $43 million of this was related to Independence which was taken out of service for repairs on April 8 and then returned to partial service on June 3, and full service on June 14. Pioneer was out of service for 24 days in April for repairs.

Nevertheless, this was our second consecutive quarter of record gross operating margin and record net income and our third consecutive quarter of record EBITDA. We have $535 million of gross operating margin and for the first time, exceeded $500 million of quarterly EBITDA at $506 million. Adjusting for earnings and distributions from unconsolidated affiliates EBITDA was $515 million for the second quarter.

Distributable cash flow totaled $375 million this quarter after excluding gains and losses associated with interest rate hedging activities. Even with the loss on these hedges, distributable cash flow produced 1.4 times coverage of the $0.515 distribution we declared with respect to the second quarter this year. We retained approximately $86 million or $25% of our distributable cash flow this quarter, while still increasing the quarterly distribution rate by 6.7% year over year.

For the first six months of 2008 we've retained $212 million of distributable cash flow which provides us with flexibility to reinvest in growth capital projects and reduce debt and further reduces our need to access the capital markets. We believe this is very important with our limited partners, given the current volatility in the capital markets.

Turning to our business segments, each of our four business segments reported higher gross operating margins this quarter compared to the same quarter of last year. Our NGL pipelines and services segment benefited from strong overall demand for NGL's from the petrochemical and refining industries, reporting a 52% increase in gross operating margin in the second quarter to $318 million. Each of the businesses in this segment reported higher gross operating margins this quarter compared to the same quarter of last year.

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