Seeking Alpha

TEPPCO Partners LP

4/20/2014, 7:48 PM ET
Quote & Analysis StockTalk Description
Country: United States

We are a publicly traded, diversified energy logistics company with operations that span much of the continental United States. Our limited partner units (“Units”) are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “TPP”. We were formed in March 1990 as a Delaware limited partnership.

We own and operate an extensive network of assets that facilitate the movement, marketing, gathering and storage of various commodities and energy-related products. Our pipeline network is comprised of approximately 12,500 miles of pipelines that gather and transport refined petroleum products, crude oil, natural gas, liquefied petroleum gases (“LPGs”) and natural gas liquids (“NGLs”), including one of the largest common carrier pipelines for refined petroleum products and LPGs in the United States. We also own a marine business that transports refined petroleum products, crude oil, asphalt, condensate, heavy fuel oil and other heated oil products via tow boats and tank barges. In addition, we own interests in Seaway Crude Pipeline Company (“Seaway”), Centennial Pipeline LLC (“Centennial”), Jonah Gas Gathering Company (“Jonah”) and Texas Offshore Port System and an undivided ownership interest in the Basin Pipeline (“Basin”). We operate and report in four business segments: pipeline transportation, marketing and storage of refined products, LPGs and petrochemicals (“Downstream Segment”); gathering, pipeline transportation, marketing and storage of crude oil, distribution of lubrication oils and specialty chemicals and fuel transportation services (“Upstream Segment”); gathering of natural gas, fractionation of NGLs and pipeline transportation of NGLs (“Midstream Segment”); and marine transportation of refined products, crude oil, condensate, asphalt, heavy fuel oil and other heated oil products via tow boats and tank barges (“Marine Services Segment”).

Our reportable segments offer different products and services and are managed separately because each requires different business strategies. We operate through TE Products, TCTM and TEPPCO Midstream, and beginning February 1, 2008, through TEPPCO Marine Services. Texas Eastern Products Pipeline Company, LLC, a Delaware limited liability company, serves as our general partner and owns a 2% general partner interest in us. We hold a 99.999% limited partner interest in TCTM and 99.999% membership interests in each of TE Products and TEPPCO Midstream and a 100% membership interest in TEPPCO Marine Services. TEPPCO GP holds a 0.001% general partner interest in TCTM and a 0.001% managing member interest in each of TE Products and TEPPCO Midstream. Our interstate pipeline transportation operations, including rates charged to customers, are subject to regulations prescribed by the Federal Energy Regulatory Commission (“FERC”). We refer to refined products, LPGs, petrochemicals, crude oil, lubrication oils and specialty chemicals, NGLs, natural gas, asphalt, heavy fuel oil and other heated oil products in this Report, collectively, as “petroleum products” or “products.”

Dan L. Duncan and certain of his affiliates, including Enterprise GP Holdings and Dan Duncan LLC, a privately held company controlled by him, control us, our General Partner and Enterprise Products Partners and its affiliates, including Duncan Energy Partners. Enterprise GP Holdings owns and controls the 2% general partner interest in us and has the right (through its 100% ownership of our General Partner) to receive the incentive distribution rights associated with the general partner interest. Enterprise GP Holdings, DFI, DFIGP and other entities controlled by Mr. Duncan own 17,073,315, or 16.3%, of our Units.

We do not directly employ any officers or other persons responsible for managing our operations. Under an amended and restated administrative services agreement (“ASA”), we reimburse EPCO for all costs and expenses it incurs in providing management, administrative and operating services for us, including compensation of employees (i.e., salaries, medical benefits and retirement benefits).

At December 31, 2008, 2007 and 2006, we had outstanding 104,704,861, 89,911,532 and 89,804,829 Units, respectively.

Organic Growth Projects

During 2008, our organic growth projects included the following: Completion in the third quarter of an extension of the refined products pipeline system in Memphis, Tennessee, to provide for the delivery of jet fuel to the Memphis airport. Completion in the third quarter of a new refined products terminal located in Boligee, Alabama, along the Tennessee-Tombigbee waterway system. The 500,000 barrel storage terminal has capabilities of receiving U.S. Gulf Coast refined products and distributing them via barge or truck.

Completion in the third quarter of a 250,000 barrel crude oil storage tank in Cushing, Oklahoma. Continued construction of the multi-year Motiva Enterprises, LLC (“Motiva”) project. Construction of a new natural gasoline storage tank at our Beaumont terminal with vapor recovery and associated facilities to enable year-round natural gasoline deliveries via new connections to Exxon Mobil Corporation’s Beaumont refinery and chemical plants. Completion is expected in the first quarter of 2009.

Reactivation of two 400,000 barrel storage tanks related to the 2005 Genco acquisition for distillate storage. Construction of an added extension of our pipeline system in Memphis, Tennessee, to supply a third party refined products distribution terminal. Completion is expected in the second quarter of 2009.

Jonah System Expansions

In June 2008, Jonah completed its Phase V expansion, which increased the combined gathering capacity of our Jonah and Pinedale fields systems from 1.5 Bcf per day to 2.35 Bcf per day. The increased capacity from the expansion has reduced system operating pressures and increased production rates and ultimate reserve recoveries.

In early 2008, Jonah began an expansion of the portion of its system serving the Pinedale field, which is expected to further increase the combined system capacity of our Jonah and Pinedale fields from 2.35 Bcf per day to approximately 2.55 Bcf per day. This project will include an additional 17,000 horsepower of compression at the Paradise and Bird Canyon stations in Sublette County, Wyoming and involve construction of approximately 52 miles of 30-inch and 24-inch diameter pipelines. The pipelines and 10,200 horsepower of compression were completed and placed in service in November 2008. The remaining 6,800 horsepower of compression at Bird Canyon is expected to be completed in mid 2009. The total anticipated cost of this system expansion is expected to be approximately $125.0 million. Our share of the costs of the construction is expected to be 80.64%, and Enterprise Products Partners’ share is expected to be 19.36%. Enterprise Products Partners is managing the construction project.

Texas Offshore Port System Joint Venture

In August 2008, we, together with Enterprise Products Partners and Oiltanking Holding Americas, Inc. (“Oiltanking”), formed Texas Offshore Port System, a joint venture to design, construct, operate and own a new Texas offshore crude oil port and pipeline system to facilitate delivery of waterborne crude oil to refining centers located along the upper Texas Gulf Coast. The joint venture’s primary project, referred to as “TOPS,” includes (i) an offshore port (which will be located approximately 36 miles from Freeport, Texas), (ii) an onshore storage facility with approximately 3.9 million barrels of total crude oil storage capacity, and (iii) an 85-mile pipeline system that will have the capacity to deliver up to 1.8 million barrels per day of crude oil, that will extend from the offshore port to a storage facility near Texas City, Texas. The joint venture’s complementary project, referred to as the Port Arthur Crude Oil Express (“PACE”) will transport crude oil from Texas City, including crude oil from TOPS, and will consist of a 75-mile pipeline and 1.2 million barrels of crude oil storage capacity in the Port Arthur, Texas, area. Development of the TOPS and PACE projects is supported by long-term contracts with affiliates of Motiva and Exxon Mobil Corporation, which have committed a combined 725,000 barrels per day of crude oil to the projects. The timing of the construction and related capital costs of the TOPS and PACE projects will be affected by the acquisition of requisite permits.

Expansion of Inland Waterway Distribution Network

In August 2008, we commenced operations at our new 500,000 barrel Boligee refined products terminal in Greene County, Alabama. Located along the Tennessee-Tombigbee waterway, the facility provides gasoline, diesel and ethanol storage capabilities and provides for direct access to most U.S. Gulf Coast refining centers through an interconnect with the Colonial pipeline system. Additionally, the intermodal terminal offers truck and marine transportation options and future rail capabilities. The facility also serves as an origination point for refined products delivered to our 130,000 barrel terminal in Aberdeen, Mississippi.

Financial Information by Business Segment

Downstream Segment – Transportation and Storage of Refined Products, LPGs and Petrochemicals

We conduct business in our Downstream Segment through the following: TE Products, our principal operating company for the Downstream Segment; TEPPCO Terminals Company, L.P. (“TEPPCO Terminals”), which owns a refined products terminal and two-bay truck loading rack both connected to the mainline system; TEPPCO Terminaling and Marketing Company, LLC (“TTMC”), which provides refined products terminaling and marketing services and owns two refined products terminals, one in Aberdeen, Mississippi and another in Boligee, Alabama; a subsidiary which owns the northern portion of the Dean Pipeline (“Dean North”); and our 50% equity investment in Centennial.

Properties and Operations

Our Downstream Segment owns, operates or has investments in properties located in 15 states. The operations of the Downstream Segment consist of interstate transportation, storage and terminaling of refined products and LPGs; intrastate transportation of petrochemicals; distribution and marketing operations, including terminaling services and other ancillary services. Other activities are related to the intrastate transportation of petrochemicals under a throughput and deficiency contract.

TE Products is one of the largest pipeline common carriers of refined products and LPGs in the United States. The Downstream Segment, primarily through TE Products, owns and operates an approximately 4,700-mile pipeline system (together with the receiving, storage and terminaling facilities mentioned below, the “Products Pipeline System”) extending from southeast Texas through the central and midwestern United States to the northeastern United States.

As an interstate common carrier, we offer interstate transportation services, pursuant to tariffs filed with the FERC, to any shipper of refined products and LPGs who requests these services, provided that the conditions and specifications contained in the applicable tariff are satisfied. In addition to services for transportation of products, we also provide storage and other related services at key points along our Products Pipeline System. Substantially all of the refined products and LPGs transported and stored in our Products Pipeline System are owned by our customers. The products are received from refineries, connecting pipelines and bulk and marine terminals located principally on the southern end of the pipeline system. The U.S. Gulf Coast region is a significant supply source for our facilities and is a major hub for petroleum refining. The products are stored and scheduled into the pipeline in accordance with customer nominations and shipped to delivery terminals for ultimate delivery to the final distributor (including gas stations and retail propane distribution centers) or to other pipelines. Pipelines are generally the lowest cost method for intermediate and long-haul overland transportation of refined products and LPGs.

The Products Pipeline System includes 35 storage facilities with an aggregate storage capacity of 21 million barrels of refined products and 6 million barrels of LPGs, including leased storage capacity. The Products Pipeline System makes deliveries to customers at 63 locations including 20 truck racks, rail car facilities and marine facilities that we own. Deliveries to other pipelines occur at various facilities owned by TE Products or by third parties.

TE Products owns one active marine receiving terminal at Providence, Rhode Island. This facility includes a 400,000-barrel refrigerated storage tank along with ship unloading and truck loading facilities. We operate the terminal and provide propane loading services to one customer. Our ability in the Downstream Segment to serve propane markets in the Northeast is enhanced by this terminal, which is not physically connected to the Products Pipeline System.

Through TTMC, we conduct distribution and marketing operations whereby we provide terminaling services at our Aberdeen and Boligee terminals. The Aberdeen terminal, located along the Tennessee-Tombigbee Waterway system in Aberdeen, Mississippi, has storage capacity of 130,000 barrels for gasoline and diesel, which are supplied by barge for delivery to local markets, including Tupelo and Columbus, Mississippi. In August 2008, we commenced operations at a 500,000 barrel refined products terminal in Boligee in Greene County, Alabama.

Located along the Tennessee-Tombigbee waterway system, the facility provides gasoline, diesel and ethanol storage capabilities and provides for direct access to most U.S. Gulf Coast refining centers through an interconnect with the Colonial pipeline system. Additionally, the intermodal terminal offers truck and marine transportation options and future rail capabilities. The facility also serves as an origination point for refined products delivered to our Aberdeen terminal.

Our Downstream Segment also includes the operations of the northern portion of the Dean Pipeline, which transports refinery grade propylene (“RGP”) from Mont Belvieu, Texas, to Point Comfort, Texas.

Refined Products, LPGs and Petrochemical Pipeline Systems

The Products Pipeline System is comprised of a 20-inch diameter line extending in a generally northeasterly direction from Baytown, Texas (located approximately 30 miles east of Houston), to a point in southwest Ohio near Lebanon, Ohio and our Todhunter facility near Middleton, Ohio. Major origination facilities for this 20-inch system are in Baytown, Texas, Beaumont, Texas, and Mont Belvieu, Texas. The Products Pipeline System continues eastward from our Todhunter facility to Greensburg, Pennsylvania, at which point it branches into two segments, one ending in Selkirk, New York (near Albany), and the other ending at Marcus Hook, Pennsylvania (near Philadelphia). The Products Pipeline System east of our Todhunter facility and ending in Selkirk is an 8-inch diameter line, and the line starting at Greensburg and ending at Marcus Hook varies in diameter from 6 inches to 8 inches. A second line, which also originates at Baytown, is 16 inches in diameter until it reaches Beaumont, Texas, at which point it reduces to a 14-inch diameter line. This second line extends along the same path as the 20-inch diameter line to the Products Pipeline System’s terminal in El Dorado, Arkansas, before continuing as a 16-inch diameter line to Seymour, Indiana.

The Products Pipeline System also includes a 14-inch diameter line from Seymour to Chicago, Illinois, and a 10-inch diameter line running from Lebanon to Lima, Ohio. This 10-inch diameter pipeline connects to the Buckeye Pipe Line Company system that serves, among others, markets in Michigan and eastern Ohio. The Products Pipeline System also has a 6-inch diameter pipeline connection to the Greater Cincinnati/Northern Kentucky International Airport.

In addition, the Products Pipeline System contains numerous lines, ranging in size from 6 inches to 20 inches in diameter, associated with the gathering and distribution system, extending from Baytown to Beaumont; Texas City to Baytown; Pasadena, Texas, to Baytown; Mont Belvieu to Beaumont; and an 8-inch diameter pipeline connection to the George Bush Intercontinental Airport terminal in Houston.

The Products Pipeline System also has various diameter lines that extend laterally from El Dorado to Helena, Arkansas, from Shreveport, Louisiana, to El Dorado and from McRae, Arkansas, to Memphis, Tennessee. The line from El Dorado to Helena has a 10-inch diameter. The line from Shreveport to El Dorado varies in diameter from 8 inches to 10 inches. The line from McRae to Memphis has a 12-inch diameter.

TE Products also owns three parallel 12-inch diameter common carrier petrochemical pipelines between Mont Belvieu and Port Arthur. Each of these pipelines is approximately 70 miles in length. The pipelines transport ethylene, propylene, natural gasoline and naphtha. We entered into a 20-year agreement in 2002 with a major petrochemical producer for guaranteed throughput commitments on these three pipelines.

Our Downstream Segment also includes the operations of the northern portion of the Dean Pipeline, which consists of 138 miles of pipeline transporting RGP from Mont Belvieu to Point Comfort.

In December 2006, we signed an agreement with Motiva for us to construct and operate a new refined products storage facility to support the expansion of Motiva’s refinery in Port Arthur, Texas. Under the terms of the agreement, we are constructing a 5.4 million barrel refined products storage facility for gasoline and distillates. The agreement also provides for a 15-year throughput and dedication of volume, which will commence upon completion of the refinery expansion or July 1, 2010, whichever comes first. The project includes the construction of 20 storage tanks, five 5.4-mile product pipelines connecting the storage facility to Motiva’s refinery, 21,000 horsepower of pumping capacity, and distribution pipeline connections to the Colonial, Explorer and Magtex pipelines. As a part of a separate but complementary initiative, we are constructing an 11-mile, 20-inch pipeline to connect the new storage facility in Port Arthur to our refined products terminal in Beaumont, Texas, which is one of the primary origination facilities for our mainline system. These projects will facilitate connections to additional markets through the Colonial, Explorer and Magtex pipeline systems and provide the Motiva refinery with access to our pipeline system. The total cost of the project is expected to be approximately $355.0 million, which includes $25.0 million for the 11-mile, 20-inch pipeline, $24.0 million of capitalized interest and $17.0 million of mutually agreed upon scope changes requested by Motiva. Through December 31, 2008, we have spent approximately $170.1 million on this construction project. Under the terms of the agreement, if Motiva cancels the agreement prior to the commencement date of the project, Motiva will reimburse us the actual reasonable expenses we have incurred after the effective date of the agreement, including both internal and external costs that would be capitalized as a part of the project, plus a ten percent cancellation fee.

Centennial Pipeline Equity Investment

TE Products owns a 50% ownership interest in Centennial and Marathon Petroleum Company LLC (“Marathon”) owns the remaining 50% interest. Centennial, which commenced operations in April 2002, owns an interstate refined products pipeline extending from the upper Texas Gulf Coast to central Illinois. Centennial constructed a 74-mile, 24-inch diameter pipeline connecting TE Products’ facility in Beaumont, Texas, with an existing 720-mile, 26-inch diameter pipeline extending from Longville, Louisiana, to Bourbon, Illinois. The Centennial pipeline intersects TE Products’ existing mainline pipeline near Creal Springs, Illinois, where Centennial constructed a two million barrel refined products storage terminal. The Centennial pipeline loops the Products Pipeline System between Beaumont, Texas and southern Illinois. Looping the Products Pipeline System permits effective supply of product to points south of Illinois as well as incremental product supply capacity to mid-continent markets downstream of southern Illinois. Marathon operates the mainline Centennial pipeline, and TE Products operates the Beaumont origination point and the Creal Springs terminal.

Through December 31, 2008, including the amount paid for the acquisition of an additional ownership interest in February 2003, TE Products has invested $118.4 million in Centennial. TE Products has not received any distributions from Centennial since its formation.