- The partnership has been one of the best performers with a gain of 10% year-to-date compared to the losses recorded by other stocks.
- EPD's export facilities and capital projects coming online over the next 2-3 years will support the growth in cash flows and cash distributions.
- The unit price should follow the growth in revenues and cash flows and EPD should be trading at a substantially higher over the next two-three years.
Enterprise Products Partners (NYSE:EPD) has shown impressive rise in the stock price since the start of the year. Year-to-date EPD is up over 10% while its peers such as Energy Transfer Partners (NYSE:ETP) and Kinder Morgan Energy Partners (NYSE:KMP) are down over 1% and 5%, respectively. However, like other partnerships, cash distributions is the most attractive factor when it comes to picking EPD, and growth in distributions has been strong for the partnerships. Recently, EPD increased its quarterly distribution by 6% year-over-year, and around 1.4% compared to the last quarter, to $0.71 per common unit ($2.84 annualized). Moreover, the increasing international demand of NGL hydrocarbons such as ethane, propane and butane is going to create a massive opportunity for the partnership.
Ethane Export: Future Growth Driver
EPD identified Asia and Europe as the most important markets for its ethane exports. As mentioned in our previous article, the partnership will also benefits from ethane and naphtha price spreads in the region -- naphtha holds a 70% weight in the current feedstock mix of Europe, which presents a huge growth opportunity for ethane to be replaced with naphtha. Moreover, having huge reserves of natural gas with a vast exposure to NGLs has allowed the partnership to gain substantial benefits from the emerging markets.
EPD will build world's largest fully refrigerated ethane export facility on the Texas Gulf Coast. The partnership has executed long-term contracts to support the development of the facility which is designed to have an aggregate loading rate of approx. 10,000 barrels per hour, or up to 240 thousand barrels per day. This facility is another example of EPD seizing the export opportunity. The partnership also estimates the U.S Ethane production capacity currently exceeds the domestic demand by 300 MBPD and could exceed by up to 700 MBPD by 2020. The export facility will allow the domestic producers to tackle the issue of oversupply and sell the product at a higher margin as the demand for ethane remains high in Asia and Europe.
Moreover, this ethane export facility will be integrated with EPD's Mont Belvieu complex, which includes over 650 MBPD of NGL fractionation capacity and 100 million barrels of NGL storage capacity, providing instant access to EPD for exports. The Mont Belvieu facility receives NGL supplies from the major producing basins across the U.S and is connected to growing Marcellus and Utica Shale reservoirs through EPD's recently completed ATEX ethane pipeline. The export facility is expected to begin operations in the third quarter of 2016.
Refined Products Exports
While the demand for NGL byproducts is increasing sharply in the international markets, EPD also completed its export facility for refined products as well. EPD started its refined products exports from its reactivated Marine terminal in Beaumont, Texas. The facility can load at rates of up to 15,000 barrels per hour and includes a dock with a 40-foot draft that has a capacity of up to 400,000 barrels. Moreover, the terminal has access to more than 12 million barrels of refined products storage and accumulates the final yield from eight refineries, representing a capacity of approximately 3.3 million barrels per day - with the help of this facility, EPD will be able to provide more timely solutions to shippers that further strengthens the Gulf Coast region as the primary gateway for refined products distribution around the world. Furthermore, the partnership also plans to expand this facility in the future by adding a second dock and on-site storage for blending components.
The addition of fee based services has increased the profitability of the partnership over the last few quarters. EPD reported its first quarter earnings recently, which showed increased earnings per unit of $0.79 over the quarter. This increase is mainly due to the strong volume growth on the crude and NGL pipelines. Further, the partnership has increased its cash distributions for each of the last 38 quarters, the longest for any of the publicly traded energy partnerships. Likewise, EPD again increased its quarterly distribution by 6% compared to the same period last year and 1.4% quarter-over-quarter, to $0.71 per common unit marking the 39th consecutive quarterly increase.
Enterprise Products Partners is one of the best positioned energy partnerships at the moment - the partnership has a track record of growing its cash distributions along with the capital gains. We believe the capital projects coming online over the next two years will considerably enhance the cash flows of the company and allow it to continue growth in its cash distributions. Furthermore, the price of the units should also continue to rise as the revenues and cash flows continue to show growth over the next 2-3 years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.