Enterprise Products Partners LP overcame the effect of lower natural gas processing margins in its pipelines and services segment to deliver record gross operating margin during the first quarter, as well as a 16% increase in profits. Oil-related infrastructure put in a strong showing, particularly in the Eagle Ford Shale
"Enterprise reported another strong quarter with a record $1.2 billion in gross operating margin," said CEO Michael A. Creel. "Investments in our fee-based businesses are generating increases in gross operating margin that more than offset the weakness in our natural gas processing and related NGL marketing activities due to weaker processing margins, reduced drilling in certain areas and a decrease in ethane extracted at processing plants."
Put another way, "this time last year it seemed like money was falling from the sky" in the processing business, COO Jim Teague told analysts during an earnings conference call Tuesday. Teague said Enterprise expects that ethane prices will remain depressed; however, propane is enjoying "a late but decent winter," and the partnership's expanded propane export capacity on the Houston Ship Channel is running near its limits.
Gross operating margin for the NGL pipelines and services segment was $593 compared to $655 million for the year-ago quarter. Natural gas processing and related NGL marketing generated gross operating margin of $270 million, compared to $422 million for the first quarter of 2012. The $152 million decrease was largely due to lower system-wide gas processing margins and lower equity NGL production and fee-based processing volumes associated with the partnership's plants in the Rocky Mountains.
However, fee-based gas processing volumes and equity NGL production from the partnership's plants in South Texas increased by 38% and 532%, respectively, to 2.2 Bcf/d and 32,000 b/d, respectively, associated with production growth from the Eagle Ford Shale.
The increases in South Texas volumes were primarily due to the start-up of three gas processing plants at the partnership's Yoakum facility. The first and second plants began operations in May 2012 and August 2012, respectively, while the third plant began operations last March. The 622 MMcf/d increase in fee-based processing volumes and 27,000 b/d increase in equity NGL production from the South Texas plants more than offset a 323 MMcf/d and 18,000 b/d decrease in fee-based processing volumes and equity NGL production, respectively, from Enterprise's plants in the Rocky Mountains due to lower production and reduced recoveries of ethane.
Overall, gas processing plants reported a 390 MMcf/d increase in fee-based volumes to 4.5 Bcf/d, compared to the first quarter of 2012.
Crude oil was the big story at Enterprise during the last quarter, thanks largely to the Eagle Ford Shale of South Texas. In about six months, all of Enterprise's Eagle Ford projects currently under construction should be completed, Teague said.
"Our onshore crude oil segment had a record quarter reporting $236 million of gross operating margin attributable to the partnership's investments to build our Eagle Ford crude oil pipeline system and the reversal of the Seaway crude oil pipeline as well as the growth in our marketing activities related to these assets," Creel said.
Onshore crude oil pipelines and services gross operating margin increased $197 million to a record $236 million for the first quarter from $39 million for the first quarter of 2012. Total onshore crude oil pipeline volumes increased by 275,000 b/d, or 39%, to a record 981,000 b/d for the first quarter of 2013 from 706,000 b/d for the first quarter of 2012.
Substantially all of Enterprise's major onshore crude oil pipelines, storage terminals and associated marketing activities reported increases in gross operating margin due to higher volumes and sales margins. Enterprise's South Texas crude oil pipeline system reported a $46 million increase in gross operating margin on a 176%, or 161,000 b/d, increase in volume, attributable to the start-up of the Eagle Ford crude oil pipeline extension, which began operations last June.
Enterprise's share of equity income from the Seaway crude oil pipeline increased by $36 million due to an increase in volume attributable to the reversal of the direction of Seaway to enable the delivery of oil from the storage hub in Cushing, OK, to the Gulf Coast, which commenced during the second quarter of 2012.
Offshore pipelines and services felt the impact of lower demand fee revenue and lower volumes at the Independence Hub and Independence trail pipeline in the Gulf of Mexico. Gross operating margin for the segment was $41 million for the first quarter of 2013 compared to $52 million for the same quarter of 2012.
Independence Hub and Independence Trail reported aggregate gross operating margin of $14 million, compared to $28 million for the first quarter of 2012. Natural gas volumes on the Independence Trail pipeline were 327 billion Btu/d for the first quarter of 2013 compared to 410 billion Btu/d reported for the first quarter of 2012. Total offshore natural gas pipeline volumes (including those for Independence Trail) were 733 billion Btu/d for the first quarter of 2013 compared to 962 billion Btu/d in the first quarter of 2012.
Enterprise net income increased 16% to $754 million from $651 million for the first quarter of 2012. Earnings per unit increased 14% to 83 cents/unit compared to 73 cents/unit for the first quarter of 2012. Net income for the first quarter included $64 million (7 cents/unit) of gains primarily from the sale of assets and was reduced by $11 million (1 cent/unit) of noncash asset impairment charges. Net income for the first quarter of 2012 included an income tax benefit of $47 million (5 cents/unit) and gains of $53 million (6 cents/unit) from the sale of common units of Energy Transfer Equity LP.
During the remainder of the year, Enterprise plans to complete construction of two NGL fractionators at Mont Belvieu, the Texas Express NGL pipeline, the Front Range NGL pipeline, the extension of the Seaway crude oil pipeline from Jones Creek to its Echo storage facility and the Eagle Ford crude oil pipeline in its joint venture with Plains All American Pipeline.