Enterprise Offering Funds Future Distribution Increases

Dec. 8.11 | About: Enterprise Products (EPD)

Enterprise Product Partners (NYSE:EPD) was moving lower after the bell Wednesday, as units are being weighed down by the announcement of an equity offering. EPD intends to offer 9 million common units, in addition to a 30-day underwriters option for an additional 1.35 million units. Pricing the offer at $44.68, the offering will raise net proceeds of approximately $390 million, with an additional approximate $60.3 million if the full over allotment is exercised. EPD will use the proceeds of the offering to reduce borrowing under its current credit facility.

As a holder of EPD, I'm a fan of this offering. It's the first public offering of units since December of 2010, although EPD did issue new units to acquire Duncan Energy Partners earlier this year. Importantly, EPD priced this offering at a mere 4% discount to the 52-week high of $46.70, choosing to take advantage of the strong unit price to invest in future growth. EPD has announced roughly $4.5 billion in major growth projects slated for completion in the next 3 years, a majority of which are focused on the Eagle Ford Shale or Mont Belvieu complex. There is also a proposal for a new 1,230 mile ethane pipeline system, a combination of new pipe and existing pipe, to bring Marcellus shale production down to the Gulf Coast ethylene plants.

Offerings like the one priced today are further proof that EPD has one of the best management teams in the pipeline industry. By taking advantage of the strong unit prices to raise funds, EPD is able to build new projects and expand new facilities by issuing the smallest amount of new units. Combine that philosophy with EPD's record of retaining cash flows to re-invest, while still raising the quarterly distribution in 29 consecutive quarters, and investors in the partnership have been and will continue to be rewarded with steady, long-term growth. With shares trading within a few cents of the offering price, investors looking to gain exposure to the boom in natural gas and NGL production in the US still have time to get in to Enterprise Products Partners.

Disclosure: I am long EPD.