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Enterprise Eyeing Another PDH Plant, More Frac Capacity at Mont Belvieu

Just weeks after Enterprise Products Partners LP said that it is considering building a crude oil terminal offshore Texas, management on Wednesday said they’re also mulling another propane dehydrogenation (PDH) facility and adding more natural gas liquids (NGL) fractionation capacity to the company’s extensive midstream portfolio along the U.S. Gulf Coast.

Citing demand growth for propylene and an already short market, CEO Jim Teague said Enterprise believes there is going to be a need for more more liquefied petroleum gas (LPG) export capacity. The partnership’s propylene plant production volumes, which include production from its PDH and propylene fractionation facilities, were a record 100,000 barrels/day during the quarter, compared to 81,000 barrels/day for 2Q2017.

The partnership’s propylene business reported a 104% increase in gross operating margin to $127 million for 2Q2018, up from $62 million in 2Q2017. Its PDH facility, which was placed into service in April 2018, contributed $46 million of gross operating margin during the quarter on plant production volumes, including by-products, of 26,000 barrels/day. Enterprise’s legacy propylene fractionators at Mont Belvieu reported a $16 million increase year/year (y/y) in gross operating margin for 2Q2018, primarily due to higher average sales margins.

Teague said the partnership’s plan to develop the crude terminal offshore gives it the opportunity to transport more LPGs through the Houston Ship Channel (HSC). Projects like ethylene storage, ethylene distribution, ethylene exports, propylene exports and storage, PDH and the partnership’s second isobutane dehydrogenation (IBDH) plant “fall into that category of being strategic to Enterprise as we extend our value chain, into primary petrochemicals,” Teague said.

Meanwhile, the company chief also didn’t rule out the possibility of adding a 10th NGL fractionator to its Mont Belvieu facility. The ninth unit at the site began commercial operations in May, contributing to the reported $9 million increase in gross operating margin for 2Q2018 compared to 2Q2017. Fractionation volumes were up 83,000 bbl/day y/y.

Noting the looming fractionation shortage in the next year, Teague said “this is kind of an environment where you get really creative and you use every lever you have, and Enterprise has a lot of levers that can create incremental space.”

“Record” the Key Word During 2Q2018

On top of its opportunities for future growth, Enterprise reported multiple records on both the financial and operational fronts during the second quarter.

NGL pipeline transportation volumes were a record 3.41 million bbl/day; NGL and marine terminal volumes were a record 597,000 bbl/day; ethane marine terminal volumes were a record 169,000 bbl/day; NGL fractionation volumes were a record 927,000 bbl/day, crude oil pipeline transportation volumes were a record 2.05 million b/d; and crude marine terminal volumes were a record 802,000 b/d.

“I'm not used to quoting this many records,” Teague said before moving on to list the partnership’s financial records, which included distributable cash flow excluding proceeds from asset sales that were a record $1.43 billion. In addition, segment gross operating margin for NGL pipelines and services was a record $913.7 million; and segment gross operating margin for petrochemical and refined product services was a record $281.8 million.

“We achieved record operational and financial performance during the second quarter which is traditionally a weaker seasonal period. We clearly benefited from improving fundamentals and contributions from new assets,” CFO Bryan Bulawa said.

Enterprise reported 2Q2018 net income of $687 million (31 cents/share), up from $666 million (30 cents) during 2Q2017. Operating income was $986 million during the quarter, up $47 million y/y.

Total capital spending in the quarter was $910 million, including $73 million for sustaining capital expenditures. For the first half of the year, total capital spending was approximately $2.1 billion, including $235 million in acquisitions and $140 million in sustaining capital.

“We now anticipate spending $3.8 to $4 billion in capital expenditures for the full year and approximately $315 million on sustaining capital expenditures,” Bulawa said.

Enterprise placed approximately $1.1 billion in growth capital projects into service during the quarter, including the PDH plant and fractionator at Mont Belvieu. The company currently has an additional $5.2 billion of projects under construction through 2020.

In addition, the partnership retained $491 million in excess distributable cash flow in the quarter, which alone funded “approximately 54% of our second quarter 2018 growth capital expenditures,” Bulawa said.

Enterprise assets include 49,000 miles of pipelines; 250 million bbl of storage capacity for NGLs, crude oil, refined products and petrochemicals; and 14 Bcf of natural gas storage capacity.

The company last year began building the Shin Oak NGL pipeline from West Texas to Mont Belvieu, its gas processing facility near Houston. Construction also is underway east of Houston with partner Navigator Holdings Ltd. to build an ethylene export terminal at Enterprise’s Morgan’s Point facility on the HSC.

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