01—Abstract
Summary
Summary of the 10-K filed March 2, 2009. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(EPD) reported a record 2008 with revenues of $21.91 billiona (up from $16.95 billion in 2007) and net income of $954.0 million (up from $533.7 million), driven mainly by higher energy commodity prices and volumes, strong NGL processing margins, and the startup of new assets such as the Meeker and Pioneer plants, Independence Hub, and Independence Trail. Total segment gross operating margin rose about 38% to $2.06 billion, with NGL Pipelines & Services contributing $1.29 billion. Diluted earnings per unit were $1.85, versus $0.96 in 2007, and the distribution was raised to $0.53 per quarter for the fourth quarter of 2008, a 2.0750 annual total for 2008.
The filing also highlights meaningful risks. Hurricanes Gustav and Ike reduced gross operating margin by an estimated $77.0 millionb and forced $47.9 million of repair expenses. The sharp late-2008 collapse in commodity prices and the global credit crisis drove the 2009 outlook: a reduced rig count, lower NGL margins in Q4 2008, and a more expensive capital market.
Consolidated debt reached about $9.05 billionc, with $717.6 million of maturities in 2009 that management expects to refinance. The company's 2009 hedging covers about 67% of expected equity NGL margins, which partly insulates it from weaker prices. Customer credit exposure to LyondellBasell's Chapter 11 filing was about $10.0 million after tariff remedies.
For investors, the key trade-off is strong 2008 earnings and a growing fee-based asset base against higher leverage, commodity-price sensitivity in the marketing business, and a 2009 growth program of roughly $1.00 billiond in capital spending. The January 2009 equity offering of 10.59 million units at $22.20 raised $225.6 million to reduce revolver borrowings.
02—Key points
Key Highlights
- Revenues rose 29% to $21.91 billion in 2008 from $16.95 billion, mainly from higher NGL, natural gas and petrochemical sales prices and volumes.
- Net income increased 79% to $954.0 million; diluted earnings per unit were $1.85 versus $0.96 in 2007.
- Total segment gross operating margin grew 38% to $2.06 billion; NGL Pipelines & Services delivered $1.29 billion, up from $812.5 million.
- Hurricanes Gustav and Ike cut gross operating margin by an estimated $77.0 million and produced $47.9 million of windstorm deductible repair costs.
- Consolidated debt totaled about $9.05 billion at year-end 2008, with $717.6 million maturing in 2009 that management expects to refinance.
- The 2009 capital budget is about $1.00 billion ($820 million growth, $180 million sustaining), and the company hedged roughly 67% of expected 2009 equity NGL margins.
- Distributions were $2.0750 per unit for 2008, and the quarterly rate was raised to $0.5300 for Q4 2008; credit ratings remain investment grade (Baa3/BBB-/BBB-).
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed March 2, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $35.47B$26.71B | +32.8% |
| Operating Expenses | $33.76B$25.53B | +32.3% |
| Operating Income | $1.77B$1.20B | +48.3% |
| Interest Expense | -$608.30M-$413.00M | −47.3% |
| Net Income | $164.00M$533.60M | −69.3% |
| EPS (Basic) | $0.45$0.48 | −8.2% |
| EPS (Diluted) | $0.45$0.48 | −8.2% |
05—Questions
Frequently Asked Questions
How did Enterprise Products Partners perform financially in 2008?
Revenue grew to $21.91 billion and net income to $954.0 million, up from $533.7 million in 2007. Growth came primarily from higher commodity prices and volumes, the startup of the Meeker and Pioneer processing plants, the Independence Hub platform, and strong NGL processing margins. Diluted earnings per unit were $1.85.
Is the distribution safe, and how has it grown?
The partnership paid $2.0750 per unit in 2008, and the quarterly distribution rose each quarter from $0.4750 in Q1 2007 to $0.5300 for Q4 2008. Management expects to continue comparable distributions, but payments are not guaranteed and depend on cash flow. Cash flow from operations was $1.24 billion in 2008, below the $1.59 billion in 2007 due mainly to working-capital timing and lower insurance proceeds, while distributions paid to partners totaled about $1.04 billion.
What are the main risks facing investors?
Key risks include commodity price volatility (the NGL price fell from $1.68 to $0.74 per gallon between Q3 and Q4 2008), reduced drilling activity as the U.S. rig count dropped from 2,031 to about 1,300, and hurricane exposure on the Gulf Coast. Leverage is significant at roughly $9.05 billion of debt, and tighter credit markets could raise financing costs. Hedging losses are possible in 2009, and the company is exposed to customer credit risk, including LyondellBasell's bankruptcy.
How is the company financing its growth program?
It plans about $1.00 billion of 2009 capital spending, funded through operating cash flow, borrowings under its multi-year revolving credit facility (about $1.30 billion available at year-end), and equity issuance. In January 2009 it sold 10.59 million common units at $22.20, netting $225.6 million, and it issued $500 million of 9.75% senior notes in December 2008. Major projects include the Sherman Extension, the Shenzi oil pipeline, and the Texas Offshore Port System, which is expected to cost about $1.8 billion in total.
What is the Duncan Energy Partners transaction and why does it matter?
In December 2008, EPO contributed controlling interests in several midstream businesses, including Texas intrastate pipelines and NGL assets, to Duncan Energy Partners in exchange for $280.5 million in cash and 37.3 million Class B units valued at $449.5 million. Duncan Energy Partners is a consolidated subsidiary, so its debt is included in the partnership's consolidated debt, although EPD has no obligation to repay it. The transaction gives EPD a source of asset-level capital and lets it monetize assets while retaining operating control.
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