Enterprise Products Partners (EPD) is a publicly traded energy partnership operating an integrated midstream energy system to deliver crude oil, NGLs, natural gas and other petrochemical products. EPD is a true distribution champ: In the third quarter of 2003 EPD paid $0.335 per unit in distribution which was raised to $0.69 in the fourth quarter 2013: A quarterly increase of 1.58%. EPD has now increased distribution 37 quarters in row. Rising distributions and EPD's stable cash flow profile are probably the most convincing reasons to purchase this MLP. Its distribution yield is not as high as the 6.6% for Kinder Morgan Energy Partners (KMP) but EPD's distribution record and its determination to grow its pipeline network and storage capacity make the company an interesting investment for yield hunters nonetheless. I also rated Kinder Morgan Energy Partners as an interesting Buy candidate for long-term oriented investors seeking steady income and a desire to participate in the ongoing shale boom.
3 more reasons to like Enterprise Product Partners
Besides an attractive initial distribution yield of 4.5% investors also get a well-diversified energy business with operations across the United States that connects producers and consumers domestically and internationally. EPD's asset mix includes 50,000 miles of pipelines, natural gas storage capacity, processing plants, NGL terminals and other platforms to ensure energy supply security in the U.S. EPD's assets are mainly located in the Southern US but its pipeline system connects the most relevant well- and shale plays throughout the country (Bakken, Barnett, Eagle Ford, Mississippian, Utica, Marcellus). EPD remains committed to increase its pipeline network: The ATEX Express pipeline will allow EPD to access the Marcellus/Utica Shale deposits with its liquid-rich natural gas assets and transport ethane via a 1,230-mile express pipeline to its Texas Gulf Coast operations.
Getting ready for export
Oil and gas from U.S. shale plays offer significant opportunities for energy export and ultimately higher distributions for EPD investors. Fracturing technology allows exploration companies to access hard-to-reach reservoirs that have begun to change the supply/demand picture for energy commodities with the U.S. now expected to export excess production.
EPD continues to invest in its export capabilities. First off, the expansion of EPD's pipeline system makes sure that the company can access the countries' most important energy reservoirs. Second, EPD has now 655 MBPD of fractionation capacity in place facilitating propane production and allowing EPD to capitalize on projected propane export trends. Third, EPD's pipelines are directly connected to export docks allowing the company to bring its supplies to market quickly and without friction. Fourth, in anticipation of future export growth EPD invests in the expansion of its export system and steadily adds capacity (current propane capacity 13,500 BPH, butane capacity 12,000 BPH).
Diversified earnings streams
Another reason EPD makes an interesting Buy is because it derives revenues from multiple sources: NGL pipelines contributed $2,385.2 million or 51% of gross operating margin for the twelve month ended June 30, 2013. Natural gas pipelines added $782 million to a total of $4,674.6 or 17%. Petrochemicals and refined products earned $658.4 million (14%) and crude oil pipelines $686.2 million (15%). A diversified business provides investors with a stable cash flow profile and safer distribution streams as well. EPD's gross margins and expected capital expenditures per segment are provided below:
Besides a decent distribution yield and a record of consecutive quarterly increases investors get a growing business with $8 billion of capital projects under construction. EPD is connected to the major shale deposits in the U.S. and continues to add pipeline and storage capacity to accommodate higher future oil- and gas production. EPD also invests in the expansion of its export capabilities which will allow it to capitalize on increasing export opportunities as the U.S. transitions to becoming an energy export nation. Investors purchase a MLP with an initial distribution yield of 4.5% with strong growth prospects and diversified revenue streams. Revenues from multiple sources add stability to EPD's earnings and cash flows and make distributions of relatively low risk. Long-term Buy.