Enterprise Products Partners (NYSE:EPD) is a long-time favorite of mine among midstream energy names. I've liked Enterprise because of its high distribution coverage and conservative approach to both leverage and capital structure. Unlike a handful of other midstream names, Enterprise Products Partners has always had a simple ownership structure and also has never had to cut its distribution.
The general feeling among midstream names these days is that the market wants these companies and partnerships to be more conservative in leverage and distribution coverage. Many names, including both Enterprise, Kinder Morgan (KMI) and others, are trying to both delever and improve their coverage ratios. It seems the market is really penalizing those midstream companies that keep high leverage (debt anywhere near 5.0 times) and lower coverage ratios. Based on my observations, the big midstream names are working to improve coverage ratios and delever to the point where they are structured similarly to some MLPs that are associated with companies such as Shell, Phillips 66 and others.
Such is the case for Enterprise Products Partners, which has built its DCF coverage ratio to 1.5 times (from the typical 1.2 times in the past) and has continued to delever to where its debt is now just 3.9 times EBITDA. While this has no doubt made Enterprise a less risky venture, it has also slowed down distribution growth. Over the course of the last twelve months, for example, Enterprise has only grown its distribution some 2%. This article takes a look at Enterprise's latest quarter, its capital plans, volume trends and expectations for the distribution going forward.
A very good quarter
Midstream volumes were up across the board, mostly from higher production coming from the Permian Basin. Enterprise's NGL volumes grew 14%, natural gas volumes increased 12%, and NGL fractionation volumes grew another 10%. This wasn't a particularly
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