With record volumes moving across six of Enterprise Products Partners LP’s (EPD) midstream facilities and a slew of new projects recently announced, the company is targeting $3.8 billion in capital expenditures (capex) for 2019 and eyeing $3-4 billion in 2020 spending that would fund organic growth projects.
“Given the size and integrated nature of our systems, we are always evaluating our alternatives to reduce the capital intensity of some of these projects, while enjoying the benefits of incremental volumes in our system,” CEO Jim Teague said Monday on a call to discuss third quarter earnings.
EPD during the third quarter began construction on the Gillis Lateral, a 1.1 Bcf/d, 80-mile natural gas pipeline that would move volumes from a point near Cheneyville, LA, on the Acadian Haynesville Extension to third-party interconnects near Gillis, LA. The pipe would link to multiple pipelines serving liquefied natural gas (LNG) export facilities in South Louisiana and Southeast Texas.
Natural gas pipeline volumes on EPD’s systems increased to a record 14.5 trillion Btu/d during the quarter, up from 14.0 trillion Btu/d during 3Q2018. Meanwhile, the partnership’s Orla III plant in the Permian began operations in July, combining with the other two Orla plants for a 382 MMcf/d increase in fee-based processing volumes in 3Q2019 compared with 3Q2018. Total fee-based processing volumes increased to 5.3 Bcf/d from 5.1 Bcf/d year/year.
Natural gas liquids (NGL) pipeline transportation volumes for the third quarter increased to a record 3.6 million b/d from 3.5 million b/d in the same quarter last year. NGL marine terminal volumes were slightly lower year/year, at 602,000 b/d this quarter compared to 606,000 b/d in 3Q2018.
With record crude oil transportation volumes also achieved during 3Q2019, EPD is moving forward with its Midland-to-ECHO 4 crude oil expansion that would move supply from the partnership’s 6 million bbl storage facility in Midland, TX, through the Eagle Ford Shale system in South Texas to its 3 million bbl ECHO Terminal east of Houston.
“By utilizing our Eagle Ford asset, shippers and producers will have the ability to match their pipeline capacity to their allocations of capital between the Eagle Ford and Permian basins. This type of flexibility for our customers is unmatched,” Teague said.
EPD also announced a customer-pushed expansion of its Appalachia-to-Texas (aka ATEX) ethane pipeline that would boost capacity by 45,000 b/d from the current 145,000 b/d through improvements and modifications to existing infrastructure. The company expects the incremental capacity to be available by 2022.
EPD spent $1.1 billion in the third quarter on capital investments, including sustaining capex of $91 million. The largest component of the capital investment increase from the second quarter was the purchase of 30-inch diameter pipe for the Midland-to-ECHO 4 expansion and the Gillis Lateral, which together totaled $370 million, according to CFO Randy Fowler.
In total, EPD has $9.1 billion of growth capital projects under construction that are scheduled to begin service between now and the end of 2023.
Meanwhile, the company is evaluating joint ventures with strategic partners, not financial partners, for certain projects and is “always looking for ways to optimize our systems based on market conditions, which could include physically changing the service or direction of our pipes,” Teague said.
The wave of new infrastructure projects occurs as EPD set six operational records during the third quarter, including natural gas pipeline volumes, NGL fractionation volumes, crude oil marine terminal volumes and fee-based natural gas processing volumes.
Net income for the third quarter was down $290 million year/year to $1.045 billion (46 cents/share), including $86 million in losses related to activities to hedge interest rates for future issuance of debt, as well as $39 million in non-cash asset impairment and related charges.
Free cash flow jumped to $1.025 billion in 3Q2019 from $477 million in 3Q2018, primarily as a result of the initial contribution of $441 million for a noncontrolling interest in the Shin Oak NGL pipeline. Distributable cash flow was $1.64 billion in 3Q2019, up $73 million from 3Q2018.