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Enterprise’s Permian Crude Line On Target as it Focuses On Growing Ethylene Market

Enterprise Products Partners LP (EPP) is on target to bring its Midland-to-Sealy crude oil pipeline in West Texas into full service by early second quarter after completing pump stations and storage facilities along the pipeline, CEO Jim Teague said Wednesday during a call to discuss 4Q2017 earnings.

The 405,000 b/d Midland-Sealy pipeline is part of EPP’s larger Midland-ECHO crude oil pipeline system in the Permian Basin. Initial volumes of about 330,000 b/d on the Midland-to-Sealy segment have been transported to Houston, where most of the oil is then exported, Teague said.

Meanwhile, the Houston-based partnership said its new propane dehydration (PDH) facility at Mont Belvieu has been running near full capacity and is in the latter stages of the commissioning phase, which is expected to last another month, Teague said. Hurricane Harvey, which stormed ashore in late August, had delayed the commissioning schedule for the PDH facility by about four weeks.

In addition, the company plans to bring online two natural gas processing plants at its Orla complex in the Delaware sub-basin of the Permian during the second and third quarters, with work continuing on a third plant to be in service in 2019.

“If you take a look at a map of our systems, you could not have put the Permian Basin in a better place,” Teague said, noting the play’s proximity to EPP’s assets along the Gulf Coast and “literally in the fairway of many of our natural gas and natural gas liquids assets...

“We’re finding opportunities to connect the dots around our assets, including expanding existing assets, converting assets and building new projects like our Orla processing complex and Shin Oak,” a natural gas liquids pipeline. “We’re not done finding opportunities in what is now the world’s hottest basin,” he said.

In addition to unveiling fourth quarter earnings, EPP on Wednesday announced a 50/50 joint venture with Navigator Holdings Ltd. to launch an ethylene export project on the Gulf Coast that would be able to export up to 1 million tons/year.

Refrigerated storage for 30,000 tons of ethylene would be constructed at a site that is still to be determined, the partners said. As designed, the export facility could be in service by early 2020 and be able to load ethylene at rates of 1,000 tons/hour.

According to the sponsors, the project is supported by long-term contracts with anchor customers that include Flint Hills Resources and an undisclosed Japanese trading company. However, a final investment decision is subject to “reaching acceptable arrangements with local taxing authorities.”

Along with the new export facility, EPP is converting one of its storage caverns into a high-capacity ethylene salt dome well that could be completed in early 2019. The system would be designed around the eight ethylene pipelines that are within a half-mile of EPP’s storage system.

The partnership also has begun building an ethylene logistics system to support the nearly 50% increase in ethylene capacity growth seen along the Gulf Coast. Like the company has seen in natural gas, NGLs and crude oil, “petrochemical expansions of this magnitude don’t come without opportunities for Enterprise,” Teague said.

By 2021, the state of Texas should be the largest producer of ethylene from steam-cracking in the world, “and that’s not counting what is happening across the border in Louisiana,” he added.

Meanwhile, EPP will “soon” be putting its ninth NGL fractionator into service and plans to expand its NGL/crude oil/refined products storage facilities. An isobutane dehydrogenation plant in Mont Belvieu remains under construction and also is expected to be in service in 2019.

Half of the capacity at the 425,000 ton/year plant would help build excess capacity in in EPP’s high purity isobutylene and MTBE plant, which “will allows us to upgrade more NGLs into higher value products,” Teague said. The other half of the capacity is committed to an investment rate customer on a 15-year fee-based contract.

On the earnings front, EPP reported a net income of $797 million (36 cents/unit) for 4Q2017, up from $670 million (31 cents) in 4Q2016. For the year, net income was $2.9 billion ($1.30/unit) from $2.6 billion ($1.20) in 2016.

EPP reported operating income of $1.1 billion for 4Q2017, compared with $923 million for the same quarter in 2016. The company reported a 10% increase in operating income to $3.9 billion for full-year 2017, compared to $3.6 billion for 2016.

Total gross operating margin for 4Q2017 was $1.5 billion, compared with $1.4 billion for 4Q2016. For 2017, total gross operating margins increased 8% to a record $5.7 billion from $5.2 billion in 2016.

“The downturn that started in 2014 has been painful, but it did have a silver lining,” Teague said. He added that EPP had not achieved financial and operating results like the ones reported for 4Q2017 since reporting 2014 results, “when we had much higher commodity prices.”

Total capital spending in the final three months of 2017 was $1.0 billion, which included $80 million of sustaining capital expenditures (capex). Capital spending for the year was $3.4 billion, including $244 million of sustaining capex. For 2018, EPP currently expects to invest about $3 billion for growth capital projects and approximately $325 million for sustaining capex.

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