Enterprise Products Partners LP, the second largest publicly-traded midstream energy partnership in the country, reported a strong increase in demand for its energy services in the first quarter, with net income rising to $58.5 million (23 cents/unit), compared with $40.5 million (19 cents) a year earlier.

The 1Q2003 income included a non-cash charge to interest expense of $11.3 million (6 cents/unit) for the write-off of financing costs related to its acquisition of the Mid-America and Seminole pipeline systems.

“With the improvement in the overall economy, we have experienced a significant increase in demand for our midstream energy services compared to the second half of 2003,” said CEO O.S. “Dub” Andras. “Gross operating margin for the first quarter of 2004 was the third highest on record and increased by 19% over the fourth quarter of 2003. Contributing to this increase was increased margin in our Processing and Pipeline segments, including the equity income from our 50% ownership in the general partner of GulfTerra Energy Partners LP.”

Andras said the second quarter is showing that business fundamentals continue to improve. “Our largest natural gas liquids (NGL)-consuming customers are experiencing stronger demand for their products and they believe that this will be sustainable throughout 2004,” he said. “In addition, natural gas prices have decreased relative to other forms of energy. During 2003, natural gas prices averaged 100% of crude oil prices on an energy equivalent basis compared to 93% during the first quarter of 2004. This has made NGLs more competitive versus crude oil derivatives as a feedstock for ethylene production.”

The CEO said that the competitive NGL prices and higher ethylene production rates “translate into increased demand for ethane. Average ethane demand by the ethylene industry for the first quarter of 2004 was 718,000 bbl/d, which is comparable to the fourth quarter of 2003 and represents a 13% increase from the trough conditions that existed in the second and third quarters of 2003. The five-year average demand for ethane has been 750,000 bbl/d.”

Revenue for the first quarter increased 15% to $1.7 billion, compared with $1.5 billion last year. Operating income was $87.3 million compared to $85.0 million, up sequentially from $66.1 million for 4Q2003. Gross operating margin increased to $129.7 million in the first quarter, compared with $126.4 million in 1Q2003, and also higher sequentially for 4Q2003, which was $109.0 million.

“We continue to expect our merger with GulfTerra Energy Partners LP to be completed during the second half of 2004,” Andras said. “In anticipation of this and the long-term debt that we expect to issue to refinance GulfTerra’s indebtedness, we executed a program in March 2004 to hedge the interest rate risk associated with up to $2.0 billion of debt that we expect to issue.” At the close of business Wednesday, the value of the portfolio of interest rate hedges was approximately $109 million.

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