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Enterprise Preparing to Launch Expanded Crude, NGL and Natural Gas Systems
Enterprise Product Partners LP has $3.6 billion of assets scheduled to begin commercial operations this year to expand natural gas, liquids and crude oil systems across the United States, with almost $2 billion more rolling off the boards through 2025, executives said Wednesday.
Co-CEOs Jim Teague and Randy Fowler shared a microphone with the executive team to detail fourth quarter and full-year 2022 performance.
A second facility to convert propane into polymer grade propylene, aka propane dehydrogenation (PDP), is set to ramp up this year, along with two natural gas processing plants in the Permian Basin and a 12th natural gas liquids (NGL) fractionator at the Chambers County complex near Houston. Expansions are ongoing, too, for ethane and ethylene facilities to ensure there is adequate export access.
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All of the projects “are underwritten by long-term agreements and will provide new sources of cash flow for the partnership,” Teague said. “We embark on this new year with one of the strongest balance sheets in our history. This provides Enterprise the financial flexibility to invest in new growth opportunities and to help weather unforeseen macro-economic challenges.”
For now, however, growth is tied to crude.
“We are constructive on crude oil but much much less on natural gas,” Teague said. “Crude spreads should lead to U.S. petrochemicals having a very large cost advantage globally. On the supply side, start with the fact that volumes from the Strategic Petroleum Reserve provided a whopping 240 million barrel slug of supplies into global markets. Most of it was from the U.S. Those barrels are not going to be here in 2023.”
Meanwhile, with China’s economy reopening, oil demand is forecast to rise by around 1 million b/d to 16 million b/d by June, accounting for one-half of expected global oil demand growth, Teague added.
“One thing we believe is that there will be continued volatility in 2023. But experience has taught us that volatility leads to opportunities…We think that demand is going to be out there, and it’s going to be out there for a fairly long time. And ultimately, we think a lot of crude oil has to come from this country to satisfy that demand.”
Embracing The Volatility
Enterprise has some exposure to Waha Hub natural gas prices, given its extensive pipeline and processing systems. However, Fowler said the exposure is about the same as it was in 2022.
“We think we’re probably just shy of 400 Bcf/d,” he said. “We’re still fairly bullish on volumes…But ultimately, we think it’s going to be extremely volatile.”
Fowler said gas needs to be priced well enough to ensure a strong recovery for the producers.
“But if you look at that market, it’s not a whole lot different” than the liquefied natural gas export market, Fowler said. “The whole gas infrastructure in the U.S. is very, very fragile. And when something happens out there, there’s a lot of volatility. I think we’re going to embrace that volatility as we go forward.”
Executives also were asked about recent natural gas “puts and takes, and how the lower natural gas price environment may impact the partnership. Traders use options to speculate on natural gas prices, i.e., puts and calls (takes), which give them the right – but not obligation – to buy or sell before a specific date.
“Yes, there are a lot of puts and takes,” Fowler said. “A lower pricing, obviously, affects our equity gas, and that’s probably around 100 MMcf today. But if you look at our total gas burn, and you equate that to our power consumption…it’s a different price level.
“We get imbalanced, and the higher price probably has some knock on benefits to us. But there’s a lot of pass throughs associated with this price.” One process could be to “just wait and catch these lower numbers. But we run a fairly balanced portfolio…
“When you look at throughput and the U.S. petrochemical industry, and you look at low gas and high crude, I mean there’s a lot of benefits for our pipeline system.”
Enterprise reported a record for total pipeline transportation volumes of 11.5 million boe/d in 4Q2022. The contributions came from across the board: higher NGL/gas pipeline transportation volumes, natural gas processing margins, and increased fee-based gas processing volumes.
Natural gas transportation volumes hit a record 17.6 trillion Btu/d in the quarter, compared with 14 trillion Btu/d in 4Q2021. For 2022, average volumes increased to 17.1 trillion Btu/d from 2021’s 14.2 trillion Btu/d.
In the final three months of last year, Enterprise also purchased 580 miles of pipeline and related assets to expand the NGL and petrochemical pipeline systems on the Texas coast.
Total fee-based natural gas processing volumes increased to a record 5.4 Bcf/d in the fourth quarter, versus 4.0 Bcf/d in 4Q2021. NGL-equivalent volumes rose to 173,000 b/d from 158,000 b/d. NGL pipeline transportation volumes climbed to 3.9 million b/d from 3.5 million b/d, while fractionation volumes were 1.3 million b/d, flat year/year.
Meanwhile, Teague took a few minutes to explain how company-wide, employees were incentivized to help improve operations in 2022.
A goal was set to “boldly go where Enterprise had never gone before,” Teague said. The mission was to eclipse adjusted profit goals – with no safety shortcuts. Returning to the Houston office following an investor day conference, Teague recalled that he and others began “kicking around the idea of creating a company-wide goal called Project Nine,” to reach $9 billion in adjusted profits for 2022.
A dozen or so employees were tasked with the strategy, and an internal communications campaign was launched. Posters were sent to all of the offices with the theme centered on the Starship Enterprise.
Initially, the fictional Star Trek space mission aboard the Enterprise, as portrayed in the 1960s TV show, initially was led by Capt. James. T. Kirk “to explore strange new worlds. To seek out new life and new civilizations. To boldly go where no man has gone before.”
The Enterprise partnership mission, though, was to make “clear that there would be no safety shortcuts,” Teague told investors. “In other words, no smoke and mirrors…Our message was that no matter your job, you can always do it better.”
The result: Enterprise achieved $9.3 billion in adjusted earnings for 2022, compared with $8.4 billion in 2021. The success has led to Project 9.3 for 2023.
“Again, don’t take it as guidance, because nothing is automatic, especially in this environment,” Teague said. However, the partnership last year managed to set “13 financial records, 10 operating records and 22 operating result records.”
For 4Q2022, net profits were $1.4 billion (65 cents/share) from year-earlier income of $1.0 billion (47 cents). In 2022, net profits totaled $5.5 billion ($2.50), versus 2021 income of $4.6 billion ($2.10).
This year, Enterprise is forecasting growth capital investments of $2.3-2.5 billion, with sustaining capital spending of $400 million.
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