Enterprise Products Partners LLC holds a substantial share of the U.S.natural gas liquids (NGL) market, and its intrastate natural gas pipeline system in Texas is stronger than ever. So what's the next thing? CEO Robert Phillips said Thursday the master limited partnership (MLP) now has its sights set on the interstate gas pipeline market.

"In the NGL value chain, there is little we can buy because of our 50-60% share of market," Phillips said at the company's annual analyst meeting in New York City. "We are already strong in intrastate Texas. So we see the next major growth area...as interstate. We will be a player on anything that comes up."

The partnership "may buy, build, or do a combo of the two," he said. "There has been a trend of supplies growing in the West -- and demand growing in the East. We want in on the opportunity."

Chairman Dan Duncan, who was one of the founding partners of Enterprise, told analysts, "There are a lot of pipelines we do not want to buy," but "we want to be involved in taking molecules to the Northeast...We're all looking at the interstate market. You go into the 'dream world' and wonder how do we make that next step? [How do we] put our footprint down? This is one area for long-term growth, and we are definitely looking at the interstate market, we're looking at anything that comes up."

The partnership's goal, he said, is "to have the footprint out there first. We look at acquisitions that fit into our footprint...The key to future growth, the cost of capital, is the one that gets it cheaper is the one who gets to grow." The Mackenzie Delta gas pipeline and the Alaska North Slope gasline "will get to the Lower 48 area some day, to the big demand areas," he said. "We see a big shortfall in the Northeast. We want to be involved in Northeast markets."

The United States is "only missing crossover pipelines," said Phillips. "Clearly, there's a lot of competition. The winners will be anchored on both sides [of the country]. So, our first step into the business was well-thought out. We didn't just jump on the first opportunity we had. We waited for the opportunity to expand our Texas pipeline [system]...to be an anchor.

The Gulf Crossing pipeline project, which was announced in November, "was a big first step for us, linking us to Petal Storage," said Phillips. "This follows the trend of moving gas west to east, to the big basis differentials." Boardwalk Pipeline Partners Gulf Crossing Pipeline, which will accommodate growing Barnett Shale production, will begin in North Texas and move east to Perryville, LA. It is supported by binding agreements with affiliates of Devon Energy Corp. and Enterprise (see Daily GPI, Nov. 13, 2006).

The CEO said Enterprise is "looking at other opportunities" similar to its growing Rocky Mountains midstream investments.

"We're looking at the next opportunity with the Rockies as an anchor to go east," said Phillips. "If we can find that opportunity just like we did with the Barnett Shale and Gulf Crossing, that's a good business concept that will work for the next five years or so."

This year, said Phillips, is the "culmination of several years of capital growth and development activities." Enterprise will be placing about $2.5 billion in new projects in service this year, which are expected to generate "significant" gross operating margins in the last six months of the year.

"With the installation of Independence Hub and Independence Trail pipeline, we have completed most of the major offshore projects initiated in 2003 to 2005," Phillips said.

Installation of the deepwater gas platform in the eastern Gulf of Mexico was completed in early March, and it is expected to ramp up later this year (see Daily GPI, March 9). The master limited partnership owns 80% of the project, which will be capable of handling up to 1 Bcf/d. The company will own 100% of the gas pipeline.

"In the recent past, [Enterprise] has had some mega projects," Phillips said. "Going forward, he expect to have more projects, but smaller projects, which tend to take less time to construct," and which will add to cash flows sooner. He noted that "every MLP wants to have an organic growth story to tell their investors. But the [Enterprise] organic growth story is different. We have a focus on more oil and gas producing basins, and on the fastest growing basins. We can add on projects to our existing assets, and no other MLP can touch that amount of opportunity."

Smaller-size MLPs "may be able to grow faster," he said, "but only in the short-term, and only while they are small. But take the example of the two hurricanes in 2005, which negatively impacted the cash flows of several smaller MLPs. We grew DCFs [discounted cash flow] that year." He said the company's "diversity of assets" and "geographic diversity added to the stability of cash flows, which is a needed element to produce sustainable growth."

Enterprise "has done great the past 10 years, but the next 10 years should be even more productive," said Phillips. We are not a discreet set of assets...we are a chain...managed to extract the most out of our assets...We are very different from everybody else."

"We're always working one, two, three, five years out," added Duncan. And the final decisions are not impulsive. "There will be no big announcement next week that we haven't told you about."

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