01—Abstract
Summary
Summary of the 10-K filed March 1, 2013. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) reported full-year 2012 revenues of $42.58 billiona, down from $44.31 billion in 2011, driven almost entirely by lower NGL, natural gas and petrochemical commodity prices rather than operating weakness. Net income rose 16% to $2.43 billion and net income attributable to limited partners climbed to $2.42 billion ($2.71 diluted EPS vs. $2.38 in 2011). Total segment gross operating margin grew to $4.39 billion from $3.87 billion, led by the NGL Pipelines & Services and Onshore Crude Oil segments, while the Offshore segment declined on lower Gulf of Mexico volumes and the expiration of Independence Hub demand fees.
The partnership also increased its distribution to $0.66b per unit for Q4 2012 (annualized roughly $2.64) and reported cash distributions of $2.57 per unit for the year. Growth spending is the central investor issue. Capital spending reached $4.25 billion in 2012, and management guides to about $4.4 billion for 2013, including roughly $4.0 billion of growth projects.
Operating cash flow fell to $2.89 billionc from $3.33 billion, so the partnership relies on debt and equity issuance to fund the gap. Total consolidated debt rose to $16.18 billion, and the company issued 9.2 million units in February 2013 for $486.6 million net. Liquidity was $3.17 billion at year-end, and credit ratings remain investment grade (BBB+/Baa2/BBB).
Key risks include a sharp fall in natural gas and ethane prices in 2012, which has led to ethane rejection and pressure on equity NGL volumes, pending FERC rate proceedings for Seaway and TE Products, and continued concentration of revenue (BP was 9.5%d of consolidated revenue). The partnership's projects, including ATEX Express, Front Range, Texas Express, the Yoakum plant and the PDH unit, are expected to support long-term fee-based growth, but investors should monitor whether these projects are completed on schedule and whether cash flow growth keeps pace with rising distributions and debt.
02—Key points
Key Highlights
- Revenue fell 3.9% to $42.58B in 2012 due to lower commodity prices, while net income rose 16.3% to $2.43B.
- Total segment gross operating margin increased 13.3% to $4.39B, with NGL Pipelines & Services contributing $2.47B and Onshore Crude Oil up 66% to $388M.
- Capital spending of $4.25B in 2012 and a projected $4.4B for 2013 drive growth, but operating cash flow declined to $2.89B from $3.33B.
- Consolidated debt rose to $16.18B; EPD issued $2.5B of senior notes in 2012 and 9.2M units ($486.6M net) in February 2013.
- Distributions increased each quarter in 2012, reaching $0.66 per unit in Q4 (about 3.8% above the 2011 Q4 rate of $0.62).
- Offshore Pipelines & Services margin fell 24% to $173M due to lower Gulf volumes and expiration of Independence Hub demand fees.
- Approximately $7.2B of major growth projects were under construction, including ATEX Express, Front Range, Texas Express, Seaway expansion and a 1.65 billion lb/yr PDH unit.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2012, Enterprise Products Partners L.P. kept $0.06.
- Revenue$42.58B100.0%
- Cost of revenue−$36.02B84.6%
- Gross profit$6.57B15.4%
- Operating costs−$3.46B8.1%
- Operating income$3.11B7.3%
- Interest, other & tax−$689.3M1.6%
- Net income$2.42B5.7%
Where FY2012 revenue went
$42.58B- Cost of revenue: $36.02B, 85% of revenue
- Net income: $2.42B, 5.7% of revenue
- Operating costs: $3.46B, 8.1% of revenue
- Interest, other & tax: $689.3M, 1.6% of revenue
Kept 5.7% as net incomeNet income $2.42B · 5.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2012filed March 1, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $42.58B$44.31B | −3.9% |
| Cost of Revenue | $36.02B$38.29B | −5.9% |
| Gross Profit | $6.57B$6.02B | +9.1% |
| Operating Expenses | $39.54B$41.50B | −4.7% |
| Operating Income | $3.11B$2.86B | +8.7% |
| Interest Expense | $771.80M$744.10M | +3.7% |
| Net Income | $2.42B$2.05B | +18.2% |
| Shares Outstanding (Diluted) | 1.79B1.72B | +3.9% |
05—Questions
Frequently Asked Questions
Why did revenue decline in 2012 even though profitability improved?
Revenue fell $1.73B, mainly because NGL, natural gas and petrochemical marketing revenues dropped $3.51B on lower commodity prices (natural gas averaged $2.79/MMBtu vs. $4.04 in 2011). Those lower purchase costs also reduced cost of sales by $2.3B-plus, so the decline mostly reflects pass-through pricing. Fee-based segment margins rose, which is why net income grew.
Can the company sustain its distributions while spending $4.4 billion in 2013?
Operating cash flow of $2.89B in 2012 did not cover distributions of about $2.2B plus $3.6B of capex, so the gap was funded with debt and equity. Management says it expects to fund capex through operating cash flow, borrowings, debt and equity issuance, and potential divestitures, and it has sold part of its Energy Transfer Equity stake and Seminole segment to help. Distribution coverage therefore depends on cash flow from completed projects arriving on time.
What are the main risks from the 2012 ethane and NGL price environment?
Ethane averaged $0.40/gallon in 2012 versus $0.77 in 2011, which led producers to reject ethane and reduced equity NGL production (down to 101 MBPD from 116 MBPD). Management expects this oversupply to persist until ethylene capacity grows, which could lower processing margins and NGL fractionation and pipeline volumes in the near term.
How concentrated is the customer base and what regulatory matters are pending?
Revenue is diversified, with BP at 9.5% of 2012 consolidated revenue and Shell at 10.6% in 2011. Pending matters include FERC proceedings on Seaway's market-based rates and cost-of-service tariffs, an ALJ initial decision against Enterprise TEPPCO on market power for refined products, and the Texas Express and Front Range pipeline approvals. Outcomes could affect future tariff rates and cash flows from these assets.
What growth projects are expected to drive future earnings?
Key projects include the ATEX Express ethane pipeline (expected Q1 2014), the Texas Express and Front Range NGL pipelines (Q2 and Q4 2013), two additional Mont Belvieu fractionators adding 170 MBPD (Q4 2013), the Seaway expansion (Q1 2014), the PDH facility (Q3 2015) and the Yoakum plant's third train (March 2013). Management says these fee-based projects, backed by long-term customer commitments, support growth through 2015.
06—Continue