01—Abstract
Summary
Summary of the 10-K filed February 29, 2012. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) closed 2011 with record results: revenues rose to $44.3 billiona (from $33.7 billion), operating income reached $2.86 billion (from $2.15 billion), and net income attributable to partners climbed to $2.05 billion (from $321 million, which was depressed in 2010 by the Holdings Merger accounting). Gross operating margin increased 19% to $3.87 billion, led by NGL Pipelines & Services ($2.18 billion) and Onshore Natural Gas ($675 million). Cash distributions per unit rose to $2.44 from $2.27, and the quarterly payout reached $0.62 for the fourth quarter, the 2012 February distribution.
Growth remains heavy: 2011 growth capital spending was $3.55 billionb, with 2012 consolidated capex guided at about $3.8 billion, including $3.5 billion of growth projects in Eagle Ford, Haynesville, the ATEX Express, the SEKCO pipeline, and Seaway reversal. Balance sheet and liquidity both improved. Credit ratings were upgraded in January and February 2012 (S&P to BBB, Moody's to Baa2, Fitch to BBB).
Liquidity stood at $3.37 billionc at year-end. Total debt principal is about $14.5 billion, with roughly 7.6% variable-rate exposure.
The company also sold 22.8 million Energy Transfer Equity units in January 2012 for $825 milliond, reducing that stake to about 6 million units. Key risks flagged include commodity price exposure through percent-of-liquids and keepwhole contracts, the Gulf of Mexico drilling moratorium's lingering effects, FERC rate-case proceedings, climate and pipeline-safety regulation, and the reliance on EPCO affiliates and related-party arrangements.
02—Key points
Key Highlights
- Revenues of $44.31 billion in 2011, up 31% from $33.74 billion, driven by higher NGL, crude oil, and petrochemical sales prices and volumes.
- Operating income of $2.86 billion (up 33%) and net income attributable to partners of $2.05 billion, versus $321 million in 2010.
- Total segment gross operating margin rose 19% to $3.87 billion; NGL Pipelines & Services contributed $2.18 billion, the largest segment.
- Growth capital spending of $3.55 billion in 2011, with 2012 total capex guided to about $3.8 billion ($3.5 billion growth).
- Quarterly distribution raised to $0.62 per unit (paid February 2012); 2011 distributions totaled $2.44 per unit versus $2.27 in 2010.
- Credit ratings upgraded in early 2012 (S&P BBB, Moody's Baa2, Fitch BBB); $3.37 billion liquidity at year-end 2011.
- Sold 22.8 million Energy Transfer Equity units for $825 million in January 2012, cutting the stake to about 6 million units.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Enterprise Products Partners L.P. kept $0.05.
- Revenue$44.31B100.0%
- Cost of revenue−$38.29B86.4%
- Gross profit$6.02B13.6%
- Operating costs−$3.16B7.1%
- Operating income$2.86B6.5%
- Interest, other & tax−$812.2M1.8%
- Net income$2.05B4.6%
Where FY2011 revenue went
$44.31B- Cost of revenue: $38.29B, 86% of revenue
- Net income: $2.05B, 4.6% of revenue
- Operating costs: $3.16B, 7.1% of revenue
- Interest, other & tax: $812.2M, 1.8% of revenue
Kept 4.6% as net incomeNet income $2.05B · 4.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 29, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $44.31B$33.74B | +31.3% |
| Cost of Revenue | $38.29B$28.72B | +33.3% |
| Gross Profit | $6.02B$5.02B | +20.0% |
| Operating Expenses | $41.50B$31.65B | +31.1% |
| Operating Income | $2.86B$2.15B | +33.2% |
| Interest Expense | $744.10M$741.90M | +0.3% |
| Net Income | $2.05B$320.80M | +538.1% |
| EPS (Basic) | $1.24$0.58 | +112.0% |
| EPS (Diluted) | $1.19$0.57 | +107.0% |
| Shares Outstanding (Basic) | 1.65B549.00M | +200.4% |
| Shares Outstanding (Diluted) | 1.72B557.00M | +208.8% |
05—Questions
Frequently Asked Questions
What drove the large increase in 2011 revenue and operating income?
Revenue growth came mainly from higher commodity prices and volumes: NGL and related product sales rose $3.28 billion, crude oil sales rose $5.25 billion, and petrochemical and refined products sales rose $1.99 billion. Operating income increased $712 million, helped by NGL fractionation (up $82 million), Onshore Natural Gas (up $148 million), Onshore Crude Oil (up $120 million), and a $129 million gain on the sale of the Crystal natural gas storage assets. Offshore margins fell on lower Gulf of Mexico volumes after the drilling moratorium.
Is the distribution sustainable given the heavy capital spending plan?
Distributions are funded primarily by operating cash flow, which rose to $3.33 billion in 2011 from $2.30 billion. Distributions to partners and noncontrolling interests totaled about $2.04 billion in 2011. The company also has growing capex, $3.8 billion projected for 2012, so it relies on debt issuance, asset sales, and joint ventures to close the gap. Management says it expects to keep distributions at comparable levels, but the filing explicitly warns that payment is not guaranteed and that distributions could be reduced if cash flow falls short.
How exposed is Enterprise to commodity prices and interest rates?
Commodity exposure is partly hedged. The company uses derivatives to lock in margins on natural gas processing (percent-of-liquids and keepwhole contracts) and inventory, but some risk remains unhedged, including basis risk and physical inventory. Interest rate exposure is modest: about 7.6% of the $14.48 billion of debt is variable-rate, and the company held $1.35 billion of interest rate swaps and approximately $290 million of forward-starting swap liabilities at year-end 2011, which create mark-to-market volatility.
What are the main legal, regulatory, and environmental risks?
Key regulatory risks include FERC rate challenges on interstate liquids and natural gas pipelines (including a pending market-based rate application and an income tax allowance policy under review), Gulf of Mexico offshore permitting rules following Deepwater Horizon, and pipeline safety legislation that raises maximum penalties to $2 million. Environmental exposure includes greenhouse gas rules, EPA air emission proposals for oil and gas facilities, and several enforcement matters with penalties expected to exceed $0.1 million each, with the Colorado air matters estimated near $1.1 million. The filing states it does not expect these to have a material adverse effect.
How do the related-party relationships with EPCO and Energy Transfer Equity affect investors?
EPCO, a privately held affiliate controlled by the Duncan family trusts, owns about 38% of the units and operates the partnership under an administrative services agreement with cost reimbursement at no markup. Enterprise has no employees. Related-party costs totaled $1.87 billion in 2011, including $723 million to EPCO affiliates and $1.10 billion to Energy Transfer Equity affiliates. Investors should note that the general partner has limited fiduciary duties, EPCO affiliates have pledged large blocks of common units as collateral, and the Audit Committee reviews conflicts of interest. Energy Transfer Equity will stop being reported as a related party starting in Q1 2012 after the stake reduction.
06—Continue