01—Abstract
Summary
Summary of the 10-K filed February 28, 2007. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) reported record 2006 results in its 10-K filed February 28, 2007. Revenues rose to $14.0 billiona (from $12.3 billion in 2005), operating income increased to $860.1 million (from $663.0 million), and net income reached $601.2 million (from $419.5 million). Segment gross operating margin grew 20% to $1.36 billion, led by NGL Pipelines & Services ($752.5 million), while Onshore Natural Gas Pipelines fell to $333.4 million on San Juan Gathering and Wilson storage problems.
Distributions per unit rose to $1.825b in 2006, and the Q4 2006 quarterly distribution was raised to $0.4675. The company is in a heavy growth-capital phase, with 2007 consolidated capital spending forecast at about $1.9 billion, mainly for Rocky Mountain, Barnett Shale, Piceance Basin, and Gulf of Mexico projects such as Independence Hub and Independence Trail. Total debt was about $5.3 billion at year-end 2006, and the Operating Partnership's credit rating was upgraded to investment grade by S&P in December 2006.
Liquidity relies on the Multi-Year Revolving Credit Facility, with about $790 millionc available at year-end. Key event-driven items include the February 2007 IPO of Duncan Energy Partners (NYSE: DEP), which raised $291.3 million in net proceeds for the company, and a DOJ criminal investigation plus civil claims (up to $17.4 million in fines) tied to a 2004 ammonia release on a Magellan-owned pipeline that EPD operates. A TEPPCO unitholder lawsuit over related-party transactions is also pending; management views it as without merit.
02—Key points
Key Highlights
- Revenue grew 14% to $13.99 billion in 2006, and operating income rose 30% to $860.1 million, driven by higher NGL marketing volumes and prices and a stronger NGL Pipelines & Services segment.
- Net income increased 43% to $601.2 million, or $1.22 per unit (basic and diluted), versus $0.91 in 2005.
- Total segment gross operating margin reached $1.36 billion (up 20%), with NGL Pipelines & Services at $752.5 million (up 30%) and Petrochemical Services at $173.1 million (up 37%); Onshore Natural Gas Pipelines declined to $333.4 million.
- Distributions per common unit rose to $1.825 for 2006 from $1.698, and the Q4 2006 quarterly distribution was raised to $0.4675, consistent with a steady distribution growth track record.
- Planned 2007 consolidated capital spending of about $1.9 billion (about $1.7 billion growth) targets Piceance Basin (Meeker), Barnett Shale (Sherman Extension, $424.6 million), Independence Hub, Jonah Phase V, and Hobbs fractionator projects.
- Duncan Energy Partners IPO (February 5, 2007) raised $291.3 million net proceeds; EPD retained 34% direct interests in contributed subsidiaries and 26.4% of DEP's common units.
- Debt of about $5.3 billion at year-end 2006, with the Operating Partnership rated investment grade (Baa3/BBB-/BBB-); $550 million of 8.375% junior subordinated notes due 2066 were issued in 2006.
- Legal and regulatory overhang: a DOJ criminal investigation and ENRD civil claims over a 2004 ammonia pipeline release (statutory maximum civil fines up to $17.4 million), plus a TEPPCO unitholder class action over Jonah and Pioneer transactions.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2006filed February 28, 2007Financial Statements
| Revenue | $23.61B |
| Operating Expenses | $22.52B |
| Operating Income | $1.12B |
| Interest Expense | -$324.20M |
| Net Income | $601.10M |
05—Questions
Frequently Asked Questions
How did Enterprise Products Partners perform financially in 2006?
Revenue rose to $13.99 billion from $12.26 billion, operating income increased to $860.1 million from $663.0 million, and net income grew to $601.2 million from $419.5 million, or $1.22 per unit versus $0.91. Gross operating margin increased 20% to $1.36 billion, with NGL Pipelines & Services and Petrochemical Services leading the gains.
What is driving the company's growth outlook for 2007?
Management expects 2007 to be a transition year as several large projects enter service, including Independence Hub and Independence Trail (second half 2007), the Piceance Basin Meeker plant, Jonah Phase V expansion, the Hobbs NGL fractionator, and the Mid-America Phase I expansion. Consolidated capital spending is forecast at about $1.9 billion for 2007, and the company expects higher volumes from Rocky Mountain, Texas, and Gulf of Mexico production growth.
What are the main risks and legal exposures disclosed?
Key risks include commodity price volatility (natural gas, NGLs), declining production or demand for NGLs, rising debt (about $5.3 billion) and interest rate exposure (about $1.5 billion variable), construction cost and timing risk, hurricane exposure, and rising insurance costs. Legal items include a DOJ criminal investigation and ENRD civil claims over a 2004 ammonia release on a Magellan-owned pipeline (up to $17.4 million in fines, with indemnity sought from Magellan), and a TEPPCO unitholder lawsuit over the Jonah joint venture and Pioneer plant purchase, which management calls without merit.
What did the Duncan Energy Partners IPO mean for Enterprise Products Partners?
Duncan Energy Partners sold 14.95 million units at $21.00 in February 2007, raising $291.3 million net. It distributed $260.6 million of proceeds to EPD, along with $198.9 million of borrowings, and EPD used the cash to reduce its revolver. EPD consolidates DEP, and public DEP unitholders are presented as a noncontrolling interest. The IPO provides a vehicle for future drop-downs of midstream assets to fund EPD's capital program, though EPD has no obligation to make such contributions.
How strong is the balance sheet and liquidity position?
At December 31, 2006, the company had total assets of $13.99 billion, partners' equity of $6.48 billion, and about $5.3 billion of debt. Cash was $22.6 million, with about $790 million of revolver availability. The Operating Partnership's senior unsecured ratings were upgraded to investment grade by S&P in December 2006, and all three agencies assign stable outlooks. Management believes capital access and operating cash flow are sufficient to fund its growth plans, while the 2007 capital program relies on a mix of operating cash, borrowings, equity, and asset divestitures.
06—Continue