01—Abstract
Summary
Summary of the 10-K filed March 3, 2014. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) reported record 2013 results driven by its growing midstream footprint. Total revenues rose about 12% to $47.73 billion, operating income increased to $3.47 billiona from $3.11 billion, and net income attributable to limited partners reached $2.60 billion, or $2.82 diluted earnings per unit versus $2.71 in 2012. Total segment gross operating margin, the non-GAAP measure management uses to evaluate segments, grew to $4.82 billion from $4.39 billion, led by Onshore Crude Oil Pipelines & Services (up roughly 92% to $742.7 million) and NGL Pipelines & Services ($2.51 billion).
Much of the revenue growth reflects higher commodity marketing volumes, so investors should focus on fee-based and margin-based earnings rather than top-line figures. Cash generation strengthened, with operating cash flow of $3.87 billionb versus $2.89 billion in 2012, supporting a 2014 distribution rate of $0.70 per unit for the fourth quarter of 2013 (up from $0.66 a year earlier). Capital spending was $4.5 billion in 2013, and management guides to $3.9 to $4.4 billion for 2014, with about $5.0 billion of major growth projects expected to enter service during 2014 (including ATEX Express, the Front Range Pipeline, and the Texas Express Pipeline).
Liquidity stood at approximately $4.1 billionc at year-end, and EPO's credit ratings were BBB+ (S&P) and Baa1 (Moody's). Key risks include a heavy debt load of $17.36 billion in principal, ethane oversupply and rejection that can depress NGL volumes, lower natural gas drilling in dry-gas basins, pending FERC rate proceedings on the Seaway Pipeline's uncommitted shipper rates, and a concentration of revenue with BP (9.0% of 2013 revenues). The partnership has no employees and relies on EPCO under an administrative services agreement, and affiliates of EPCO own about 36.4% of the units, which concentrates control with the Duncan family.
02—Key points
Key Highlights
- Total revenues of $47.73 billion (up 12.1% from $42.58 billion), with operating income of $3.47 billion (up 11.5%) and net income attributable to limited partners of $2.60 billion.
- Diluted earnings per unit of $2.82 in 2013, up from $2.71 in 2012; quarterly distributions raised to $0.70 per unit for Q4 2013, an increase of about 6% year over year.
- Total segment gross operating margin of $4.82 billion (up 9.8%), with Onshore Crude Oil Pipelines & Services contributing a 92% increase to $742.7 million, driven by the Eagle Ford expansions and the Seaway reversal.
- Operating cash flow of $3.87 billion, up from $2.89 billion in 2012, with $4.5 billion of total capital spending in 2013 and a 2014 capital budget of $3.9 to $4.4 billion.
- Approximately $5.0 billion of growth projects expected to enter service during 2014, including ATEX Express, the Mid-America Rocky Mountain expansion, the Front Range Pipeline, and the Texas Express Pipeline.
- Liquidity of about $4.1 billion and investment-grade ratings (BBB+/Baa1), but total long-term debt has risen to $17.36 billion, and $2.7 billion of senior notes mature between October 2014 and December 2016.
- Key risks: ethane oversupply and ethane rejection, declining natural gas volumes in dry-gas basins, pending FERC rate challenges on Seaway's uncommitted shipper rates, and 9.0% of revenues from BP.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Enterprise Products Partners L.P. kept $0.05.
- Revenue$47.73B100.0%
- Cost of revenue−$40.77B85.4%
- Gross profit$6.96B14.6%
- Operating costs−$3.49B7.3%
- Operating income$3.47B7.3%
- Interest, other & tax−$870.4M1.8%
- Net income$2.60B5.4%
Where FY2013 revenue went
$47.73B- Cost of revenue: $40.77B, 85% of revenue
- Net income: $2.60B, 5.4% of revenue
- Operating costs: $3.49B, 7.3% of revenue
- Interest, other & tax: $870.4M, 1.8% of revenue
Kept 5.4% as net incomeNet income $2.60B · 5.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed March 3, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $47.73B$42.58B | +12.1% |
| Cost of Revenue | $40.77B$36.02B | +13.2% |
| Gross Profit | $6.96B$6.57B | +5.9% |
| Operating Expenses | $44.43B$39.54B | +12.4% |
| Operating Income | $3.47B$3.11B | +11.5% |
| Interest Expense | $802.50M$771.80M | +4.0% |
| Net Income | $2.60B$2.42B | +7.3% |
| Shares Outstanding (Diluted) | 1.84B1.79B | +3.1% |
05—Questions
Frequently Asked Questions
What drove the increase in revenue and earnings in 2013?
Revenue growth was driven mainly by higher crude oil and NGL marketing sales volumes, which carry thin margins. Earnings improvement came more from fee-based and margin-based growth: crude oil pipeline throughput rose sharply (to 1,175 MBPD from 828 MBPD) on the Eagle Ford expansion and Seaway reversal, NGL fractionation volumes rose at Mont Belvieu, and a $52.5 million gain on the Seminole Pipeline sale contributed to results.
Is the distribution sustainable, and how does coverage look?
The partnership paid $2.74 per unit in 2013 and has raised its quarterly rate each year. Operating cash flow of $3.87 billion comfortably covered the $2.4 billion paid to limited partners, and management expects distributions to be funded primarily from operating cash flow. Investors should note that distributions are not guaranteed and depend on commodity margins, project timing, and capital needs, and that distributions to the EPCO affiliate are temporarily waived on a declining schedule (22.56 million units excluded in 2014).
What are the main risks to the partnership's cash flows?
The most significant risks are commodity-related: ethane oversupply has pushed ethane prices to $0.26 per gallon, which may cause continued ethane rejection and reduced NGL volumes. Lower natural gas drilling in dry-gas basins (Jonah, Piceance, Haynesville, San Juan) is reducing gathering throughput, and Gulf of Mexico offshore gas volumes are declining. Regulatory uncertainty includes the FERC's pending decision on Seaway's uncommitted shipper rates. Leverage is also significant, with $17.36 billion of debt against $15.44 billion of total equity.
What major growth projects should investors watch in 2014?
Projects expected to begin operations in 2014 include the ATEX Express ethane pipeline (January 2014), the Mid-America Rocky Mountain expansion (January 2014), the Front Range Pipeline (February 2014), the Seaway Longhaul looping project (mid-2014), the SEKCO crude oil pipeline (third quarter 2014), and the Aegis Ethane Pipeline (portions in 2014 through 2015). Several committed-shipper contracts on new pipelines may generate deferred revenue if shippers fall short of minimum volume commitments, and management has flagged that this may occur during 2014.
How exposed is the partnership to a single customer or to EPCO?
Revenue concentration is moderate: BP accounted for 9.0% of 2013 consolidated revenues ($4.31 billion), and no other non-affiliated customer is disclosed as a major share. The partnership has no employees, so all operations and administration are performed by EPCO personnel under an administrative services agreement with cost reimbursement at no markup, and EPCO affiliates own about 36.4% of the units. Investors should weigh the governance implications of this structure, including limited unitholder voting rights and the general partner's broad conflict-resolution authority.
06—Continue