Enterprise Products Partners LP capped the last decade with another quarter of operational records in each of its business segments as well as a new high in income for 2019.
The midstream operator also welcomed a new company chief to help lead it in the new decade, with CFO Randy Fowler taking on the additional chief executive role to work alongside current CEO Jim Teague.
On the operational front, volume growth and new assets placed in service resulted in 13 operational records for the Houston-based midstreamer, including 10.4 million boe/d of total system transportation volumes, 6.7 million b/d of liquid transportation volumes and 1.9 million b/d of marine terminal export volumes, Teague said.
The fee-based volume growth, contributions from new and repurposed assets, combined with higher natural gas liquids, crude oil and natural gas marketing volumes and margins, led to record gross operating margin of $8.3 billion for 2019, a 13% increase from 2018, the company said.
“2019 was our most successful year in terms of developing high quality, fee-based projects that bolt-on to our integrated system and are substantially underwritten by long-term contracts with creditworthy customers across the exploration and production, refining and petrochemical industries,” Teague said. “The creativity and resourcefulness of our commercial, engineering and operating teams also allowed us to respond quickly to the needs of our customers as well as capturing regional price spread opportunities during the year.”
That’s not to say there weren't some challenges.
Enterprise’s natural gas pipelines and services segment reported a gross operating margin of $238 million for the fourth quarter of 2019, down from $263 million in 4Q2018. Total natural gas transportation volumes also were lower, coming in at 13.8 trillion Btu/d for the quarter, down from 14.1 trillion Btu/d a year ago.
Permian Basin assets were a bright spot on the gas side, with Enterprise's gathering system reporting a year/year increase in gross operating margin for the quarter that was mainly due to higher gathering volumes, higher condensate sales and lower operating expenses.
The Permian gathering system also benefited from the expanded Orla gas processing facilities, although Teague noted the Orla system was underperforming and the midstreamer has lowered the maximum daily quantity of at least one producer. However, the Enterprise team has backfilled the capacity with a long-term, take-or-pay contract with a large investment grade producer, according to Teague.
“These type of clawback options allow us to maximize the use of our capacity, and in this case, defer capital as much as two years.”
Meanwhile, the crude oil segment posted lower gross operating margins even as total pipeline transportation volumes increased 12% year/year to 2.3 million b/d. Total crude oil marine terminal volumes increased 38% year/year to 926,000 b/d for 4Q2019.
During 2019, Enterprise completed construction and began service on about $5.4 billion of capital projects, including $2.5 billion that were completed in the fourth quarter. The Bulldog gas processing plant began operations in the Haynesville Shale, while the Mentone plant started up in the Delaware sub-basin of the Permian.
Total capital investments for 4Q2019 were $1.2 billion, including $1.1 billion of growth capital investments and $93 million of sustaining capital expenditures (capex), according to management. Total investments for 2019 were $4.7 billion, while sustaining capex was $325 million.
Looking ahead, Teague said, “I expect 2020 to be a strong year. It's hard to set new records every year, but with our people and our footprint I'd be real careful betting against us.”
Enterprise currently expects growth capex to be in the range of $3-4 billion and sustaining capex to be about $400 million. It also intends to use roughly 2% of its 2020 cash flow from operations to buy back shares during 2020.
Capex is projected to decline to a range of $2-3 billion in 2021.
“One of our most important goals continues to be capital discipline. The lower capex in 2021 that we currently see would lead to higher free cash flow, which would provide the potential for us to consider larger buybacks,” Fowler said.
The preliminary 2021 budget does not include Enterprise’s proposed Sea Port Oil Terminal (SPOT), which is still in the application phase and for which a decision is not expected until the second half of 2020 at the earliest, according to Teague. He said Enterprise could stay within the $2-3 billion even with SPOT in the backlog, especially considering its discussions with joint venture partners.
“I think in order to get people on SPOT, they're going to want equity. And we're not driven to own 100% of SPOT,” Teague said. “If you think about it, our value lies upstream of SPOT. It wouldn't bother me for us to not own more than 40% of SPOT in the final analysis.”
Enterprise reported record net income for the full year 2019 of $4.6 billion ($2.09/share), up from $4.2 billion ($1.91) last year. Net cash flow from operations for 2019 increased 6% year/year to a record $6.5 billion.
Free cash flow in 2019 was up 24% year/year to $2.5 billion, while distributions in 2019 increased 2.3% to $1.765/share compared to 2018. Distributable cash flow increased 11% compared to 2018 to a record $6.6 billion in 2019.
Regarding Fowler's promotion to the CEO role, Teague characterized the move as “formalizing how we've always run the company.
“Randy and I don't compete with each other. We complement each other. We are truly a team … We are friends, and we respect what each other brings to the table.”
Teague, who joined Enterprise in 1999, was quick to point out that Fowler's promotion is in no way an indication of his future with the company.
“Now, let me tell you what this is not. Enterprise has never been a job for me; it's a calling. This is not a transition to Jim's retirement. As far as I'm concerned, I'm not going anywhere, and as good as I feel and as excited as I am about our future, I'm really not convinced that my runway isn't as long as Randy’s. Be that as it may, there's no one I'd rather share this title with than Randy Fowler.”
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