Enterprise Products Partners L.P. (EPD)

EPD 
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Enterprise Products Partners L.P. (EPD)

Q3 2010 Earnings Call Transcript

October 26, 2010 10:00 am ET

Executives

Randy Burkhalter – VP, IR

Mike Creel – President and CEO

Jim Teague – EVP and COO

Randy Fowler – EVP and CFO

Bill Ordemann – EVP

Christopher Skoog – SVP

Rudy Nix – SVP

Lynn Bourdon – SVP

Analysts

Ted Durbin – Goldman Sachs

Darren Horowitz – Raymond James

Steve Maresca – Morgan Stanley

John Tysseland – Citigroup

Yves Siegel – Credit Suisse

Sharon Lui – Wells Fargo

John Edwards – Morgan Keegan

Ross Payne – Wells Fargo

Lynn Bourdon – Senior Vice President

Bernie Colson – Oppenheimer

Presentation

Operator

Good morning, my name is Thea, and I will be the conference operator today. At this time, I would like to welcome everyone to the Enterprise Products and Duncan third quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions)

Thank you. At this time, I would like to turn the conference over to Mr. Randy Burkhalter. Sir, you may begin.

Randy Burkhalter

Thank you Thea. Good morning and welcome to the Enterprise Products Partners and Duncan Energy Partners joint conference call to discuss third quarter earnings. Our speakers today will be Mike Creel, President & CEO of Enterprise's General Partner. He will be followed by Jim Teague, Executive Vice President and Chief Operating Officer; and then Randy Fowler, Executive Vice President and Chief Financial Officer of the General Partner of Enterprise; and also President and CEO of the General Partner of Duncan Energy Partners. Also in attendance 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 will turn the call over to Mike Creel.

Mike Creel

Thanks Randy. Before we get started, just want to make sure everybody understands, this is our earnings call, we are not going to talk about the pending merger with Enterprise GP Holdings. We are not going to answer questions on that, but I would point you to the proxy statements that’s on file with the SEC.

With that, we reported solid earnings again this quarter, supported by record natural gas transportation volumes and near record NGL, crude oil, refined products and petrochemical pipeline volumes. Gross operating margin for the quarter increased 29% over the third quarter of last year, with four of our five business segments reporting improved results. Our NGL Pipelines & Services business reported strong results that were only slightly lower than last year.

The largest improvement for the quarter came from our petrochemical and refined products services segment, which had record gross operating margin of $166 million, 138% increase over the third quarter of 2009. Within this segment, our propylene fractionation business reported a $30 million increase in gross operating margin due to higher spread between polymer grade or finer grade propylene. This was a result of lower volumes of petrochemical cracker sourced propylene combined with increased consumer demand for propylene derivative products.

Gross operating margin from our refined products business increased by $49 million this quarter, or $20 million after adjusting for the $29 million of charges taken by TEPPCO for its river terminals in the third quarter of last year prior to the merger. The improved results were due to higher average pipeline transportation fees and increased volumes at our river terminals, primarily due to increased demand related to agriculture in the Mid West and drilling in the Haynesville Shale.

We also began commercial operations at a new refined products terminal in Port Arthur last June. Gross operating margin from our octane enhancement business increased $15 million over the third quarter of 2009 due to higher production volumes and sales prices. Our onshore natural gas pipelines and services segment reported a $46 million or 42% increase in gross operating margin on record transportation volumes of the 11.7 TBtud, which were 11% higher than the 10.5 TBtud in the third quarter of last year. This quarter-to-quarter increase was primarily related to shale plays including the Haynesville, the Piceance Basin, the Barnett Shale and the Eagle Ford. Slightly offsetting these increases in volumes were lower transportation of conventional production in South Texas, which was down by about 100 million cubic feet a day.

We recently completed the expansion of our newly acquired State Line gathering system in the Haynesville Shale, increasing its capacity 75% to 700 million cubic feet a day. And for a relatively nominal cost, we can further expand the capacity by another 70% to 1.2 billion cubic feet a day. Our Haynesville gathering systems continue to benefit from the ramp up of volumes as more wells demand and Jim will go into more detail about our projects and commercial initiatives in the Haynesville and Eagle Ford shale plays in a few minutes.

We began service in late July on the southern half of our Trinity River Lateral pipeline, which access the heart of the Newark field between Arlington and Fort Worth, Texas. You may recall, we began service from the northern half of the Trinity River Lateral last year. Our NGL Pipelines and Services segment continues to post strong results benefiting this quarter from higher equity NGL production, strong natural gas processing margins, and higher NGL transportation and fee-based gas processing volumes.

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