Enterprise Products Partners L.P. (EPD)

EPD 
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Enterprise Products Partners LP (EPD)

Q4 2007 Earnings Call

January 28, 2008 10:00 am ET

Executives

Randy Burkhalter - Director IR

Mike Creel - President and CEO

Randy Fowler - EVP and CFO

Dan Duncan - Chairman

Jim Teague - EVP

James Lytal - EVP

Analysts

Yves Siegel - Wachovia Securities

Ross Payne - Wachovia Capital Markets

Sharon Lui - Wachovia

John Edwards - Morgan, Keegan & Company

Barrett Blaschke - RBC Capital Markets

Darren Horowitz - Raymond James

Lewis Sammie - Zimmer Lucas Capital

Presentation

Operator

I’d like to welcome you to the EPD and DEP Fourth Quarter Earnings Call. (Operator Instructions).

I'd now like to turn the call over to Randy Burkhalter. You may begin.

Randy Burkhalter

Thank you, Danielle. Good morning and welcome to the Enterprise Products Partners conference call to discuss earnings for the fourth quarter. Mike Creel, Enterprise's President and CEO will lead the call, followed by Randy Fowler, the Company's Executive Vice-President and CFO. Also included on the call today Enterprise is Mr. Duncan, our Chairman and founder, 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. Although, management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurances 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.

With that I will turn the call over to Mike.

Mike Creel

Good morning, and thanks for joining us on this call today, I am pleased to report another quarter of strong operating results. In the third quarter of 2007, we announced record transportation volumes from our pipelines. In the fourth quarter we surpassed those numbers by transporting a record two million barrels of natural gas liquids, crude oil and petrochemicals, and more than 8.5 trillion Btus per day of natural gas through our integrated network of pipelines. We also fractionated a record 400,000 barrels a day of natural gas liquids, led by production in our Mont Belvieu and Hobbs facilities.

This led a record gross operating margin of $431 million for the quarter. We are continuing to realize increasing cash flows and capital projects that began operations in the later part of 2007, and we expect these assets would generate significantly higher cash-flows in 2008 with a full year of operations.

In spite of our strong performance this quarter, the results could have been better. Our Meeker gas processing facility got off to a slow start, pampered by various issues such as faulty valves and flawed engineering designs. The startup of our Pioneer gas processing plant was also delayed due to similar problems.

These issues in the late startup of both facilities caused the partnership an estimated $85 million or $0.19 per unit, in terms of expense and lost revenue opportunities. We have replaced the defective valves and corrected the engineering design at both facilities, and we're actively pursuing recoveries from the manufacturer of the valves and certain of the engineering design's firms that worked on these projects.

These types of problems are not acceptable to us, and they do not meet the engineering and operating standards that we've established in over 40 years of developing midstream projects.

I would like to recognize the employees that we've working on these projects in Colorado and Wyoming. They've worked very long, in difficult hours and very demanding conditions, to mitigate these setbacks. We've seen weather conditions at the very extreme end in the Pioneer worksite with subzero temperatures all day and winds at times exceeding 50 miles or 60 miles an hour. In spite of those conditions, our employees have performed admirably.

We recently announced the appointment of Leonard Mallett, as Senior Vice-President of all our engineering activities for EPCO partnerships. Leonard brings 28 years of experience to this position and we expect Enterprise to benefit from his exceptional technical and managerial skills.

This will be important as we continue to grow our cash flow through our organic growth projects. We've also made other organizational changes in engineering that we believe will lead to better control over projects in the future.

Three of our four business segments reported higher gross operating margins this quarter, compared to the fourth quarter of 2006. New segments reported significant increases with our Onshore Natural Gas Pipelines segment reporting a 40% increase in gross operating margin, and our Offshore Pipelines and Services segment posting a 174% increase in gross operating margin.

The Independence Hub and Trail added $48 million to gross operating margins in the fourth quarter 2007. The distributable cash flow for the quarter was $262 million, providing 1.05 times coverage of the cash distribution of $0.50 per unit paid, with respect to the fourth quarter.

Randy will discuss the earnings and cash flow in more detail in just a few minutes. Jonah gas gathering pipeline is currently moving an excessive 1.8 billion cubic feet a day of natural gas from the prolific Jonah and Pinedale fields.

We expect gathering volumes to ramp up to 2 billion cubic feet per day by the third quarter and to about 2.2 billion cubic feet by the end of the year. This is primarily as a result of the final portions of the Phase V expansion program, which involves the completion of the Phase II of the Bridger compression project. This project will add 1,200 horsepower of the electric compression and is expected to be completed by the end of this quarter.

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