Enterprise Product Partners (EPD) is the largest publicly traded energy partnership with market cap of about $55 billion. The partnership has had exponential growth through a mix of acquisitions and organic growth since going public in 1998 - EPD started with assets of $715 million, and currently it has about $35 billion in assets. At the moment, the partnership controls 50,700 miles of natural gas, NGL crude oil, petrochemicals and refined products pipeline. Furthermore, the partnership has 190 million barrels of NGL, refined products and crude oil storage capacity along with 14 billion cubic feet of natural gas storage capacity. In addition, EPD's portfolio includes 25 natural gas processing plants, 20 NGL and propylene fractionators and two NGL export/import terminals.
Competitive Advantage and Future Growth
Enterprise has a large portfolio of assets, which are located in some of the most important oil and gas production areas of the country. During 2012, the partnership benefited from increased volumes from Haynesville and Eagle Ford shale plays. Along with the strong portfolio of assets, fee based structure of the partnership shields it from the volatility in the commodity prices. Furthermore, EPD's business has substantial geographical as well as business segment diversification, which gives it cover against the slow growth in one particular segment of geographical region.
EPD has been able to establish long-term relationships with some of the most important players in the energy and petrochemical industry. The partnership has followed the strategy of jointly owning facilities with some of its suppliers and customers. As a result, the company has been able to shift some of the burden and risk to its partners. At the moment, EPD jointly owns assets with ConocoPhillips (COP), Chevron Corp (CVX), Exxon Mobil (XOM) and Dow Chemical (DOW). Enterprise benefited heavily from the increased demand of natural gas liquids from the petrochemical industry during the past year.
For Future growth the company has announced capital expansion projects worth about $7.2 billion. Over the past year, EPD spent about $2.9 billion in growth projects, and completed most of these projects below the allocated budget and ahead of schedule. A major portion of this capital expenditure will be spent in the current year, and most of these projects will be fee based projects that will be immediately accretive to cash flows.
Growth in Distributable Cash Flow (DCF) and Operations
The partnership generated $4.1 billion in distributable cash flow during 2012, recording an increase of 10% from the previous year. As a result of robust increase in the distributable cash flows, the partnership was able to boost quarterly distribution per unit to $0.66, which took the cumulative distribution to $2.57 per unit, showing an increase of about 5.6% year-over-year. Based on current distribution levels and assuming these levels will remain constant over the next year, the partnership yields 4.35%.
EPD's yield is less than some of its peers - however, strong growth opportunities, a solid asset base and visibility in earning make it an attractive investment. There are a few partnerships that can boast such price appreciation prospects along with impressive growth in distributions. Another advantage that EPD has is that it has lower long-term cost of equity capital than most of its peers. The partnership acquired its general partner (Enterprise GP Holdings), which means there are no incentive distribution rights (IDRs) for the general partner.
As a result, the partnership is able to generate more cash for its common unit holders. Lower cost base will allow the partnership to effectively expand its asset base. At the moment, EPD management is trying to convert its natural gas processing segment into a fee-based business. In the fourth-quarter last year, natural gas volumes went up by 15%, and the volumes stood at 4.7 billion cubic feet.
Enterprise units have grown by over 17% since the start of the year. Future expansion projects will be directly accretive to cash flows, which will allow the partnership to grow its distributable cash flows and cash distributions in the future. Structure and growth potential make EPD and extremely attractive investment. It has an investor friendly capital structure due to the elimination of general partner. EPD will benefit from increased production of natural gas, NGL and crude oil from the shale plays. Furthermore, increase in demand from petrochemical industry is another factor for growth.