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Enterprise Products Partners And ONEOK Q1'20 Earnings Recap: Stability In Uncertain Times

May 01, 2020 8:00 AM ETEPD, OKE5 Comments
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  • OKE reported slightly lower-than-expected adjusted EBITDA for the quarter. EPD does not provide EBITDA guidance but lowered its 2020 growth capital budget by $1 billion to $2.75 billion at the midpoint and is forecasting further spending cuts in 2021 and 2022.
  • Midstream operators have been proactive in highlighting investment grade customer bases and fee-based exposure in the last two months, and the latest earnings calls provided EPD and OKE another opportunity to emphasize the stability of their businesses.
  • EPD and OKE both maintained their 1Q20 dividends, reporting coverage ratios of 1.6x and 1.35x for the quarter, respectively.

Company Spotlights

After Kinder Morgan (KMI) kicked off midstream earnings season last week, both Enterprise Products Partners (EPD) and ONEOK Inc. (OKE) held their 1Q20 earnings calls on Wednesday. While actual results may be less of a focal point for investors this quarter given a noisy environment (read more), management commentary can provide valuable insight into the outlook for the industry. Today, we discuss some of the key learnings from EPD's and OKE's earnings calls.

Financial guidance updates - OKE reported slightly lower-than-expected adjusted EBITDA for the quarter, but all eyes were on the company's guidance updates. Management rescinded its previously issued 2020 and 2021 EBITDA guidance given the uncertainty surrounding the broader macro environment, but did provide a scenario analysis range of $2.6-3 billion for 2020 adjusted EBITDA. Management noted that this analysis was based on several different assumptions for the rate of recovery of commodity prices, volumes, and producer activity through the remainder of the year. The scenario analysis midpoint of $2.8 billion represents a 13% reduction from prior guidance for 2020 adjusted EBITDA but a 7% year-over-year increase relative to 2019. Growth capital expenditure guidance for 2020 was also reduced by another $400 million, adding to a $500 million reduction announced in mid-March, bringing the company's total growth capex budget for 2020 to $1.6 billion at the midpoint (down 56% from 2019).

Shifting to EPD, the partnership does not provide EBITDA guidance, but EPD lowered its 2020 growth capital budget by $1 billion to $2.75 billion at the midpoint and is forecasting further spending cuts in 2021 and 2022. Capex could see additional reductions later in the year pending negotiations with joint venture partners on upcoming projects. For the space more broadly, midstream capital spending was already in decline coming into 2020 (read more), and these reductions

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