01—Abstract
Summary
Summary of the 10-K filed March 2, 2015. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) reported full-year 2014 results that were driven by continued midstream expansion. Revenues rose modestly to $47.95 billiona (from $47.73 billion), while net income attributable to limited partners increased to $2.79 billion, or $1.47 diluted earnings per unit, versus $2.60 billion and $1.41 in 2013. Total segment gross operating margin grew about 10% to $5.29 billion, led by NGL Pipelines & Services (up roughly 14%, helped by the ATEX pipeline and Mont Belvieu fractionation) and Onshore Crude Oil Pipelines & Services.
Distributable cash flow covered distributions 1.51x, and quarterly distributions rose to $0.37b per unit. The partnership completed Step 1 of its Oiltanking acquisition in October 2014 (about $4.4 billion in consideration, with a $1.5 billion 364-day facility bridging the cash) and closed the Oiltanking Merger in February 2015, issuing 36.8 million additional units. Capital spending was heavy, with total 2014 spending of $8.2 billion including the Oiltanking Step 1, and a planned 2015 capital program of about $3.9 billion.
Leverage increased: long-term debt reached $21.4 billion and total equity grew to $19.7 billionc, with liquidity of $4.17 billion. Investors should weigh several risks. Crude oil prices fell from about $107 to roughly $47 by January 2015, which management expects to slow drilling in supply basins it serves.
The company faces a $535.8 milliond judgment in the ETP litigation, which it is appealing and for which no provision has been recorded. The FTC has opened an investigation into the Oiltanking acquisition, and Oiltanking was excluded from the internal control assessment at year-end.
02—Key points
Key Highlights
- Revenue of $47.95 billion (up 0.5%); net income attributable to limited partners of $2.79 billion; diluted EPU of $1.47 (up from $1.41).
- Total segment gross operating margin rose to $5.29 billion (up about 10% from $4.82 billion), led by NGL Pipelines & Services at $2.88 billion.
- Distribution coverage ratio of 1.51x; quarterly distribution raised to $0.37 per unit (annualized about $1.48).
- Completed Oiltanking Step 1 in October 2014 (~$5.9 billion total cost after the February 2015 merger), expanding crude oil storage and Gulf Coast export capacity.
- Total 2014 capital spending of $8.2 billion, with 2015 capital spending forecast at about $3.9 billion, of which $380 million is sustaining.
- Long-term debt of $21.4 billion; $4.17 billion of consolidated liquidity; BBB+/Baa1 credit ratings.
- Material legal exposure: the ETP judgment of $535.8 million (under appeal, no provision recorded) and an FTC civil investigative demand related to Oiltanking.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Enterprise Products Partners L.P. kept $0.06.
- Revenue$47.95B100.0%
- Cost of revenue−$40.46B84.4%
- Gross profit$7.49B15.6%
- Operating costs−$3.71B7.7%
- Operating income$3.78B7.9%
- Interest, other & tax−$988.3M2.1%
- Net income$2.79B5.8%
Where FY2014 revenue went
$47.95B- Cost of revenue: $40.46B, 84% of revenue
- Net income: $2.79B, 5.8% of revenue
- Operating costs: $3.71B, 7.7% of revenue
- Interest, other & tax: $988.3M, 2.1% of revenue
Kept 5.8% as net incomeNet income $2.79B · 5.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed March 2, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $47.95B$47.73B | +0.5% |
| Cost of Revenue | $40.46B$40.77B | −0.8% |
| Gross Profit | $7.49B$6.96B | +7.6% |
| Operating Expenses | $44.44B$44.43B | 0.0% |
| Operating Income | $3.78B$3.47B | +8.9% |
| Interest Expense | $921.00M$802.50M | +14.8% |
| Net Income | $2.79B$2.60B | +7.3% |
| Shares Outstanding (Diluted) | 1.90B1.84B | +2.9% |
05—Questions
Frequently Asked Questions
How did EPD perform financially in 2014?
Revenue was about $47.95 billion, and net income attributable to limited partners was $2.79 billion, or $1.47 per diluted unit. Segment gross operating margin rose about 10% to $5.29 billion, and distributable cash flow of $4.08 billion covered distributions 1.51 times.
What is the impact of falling crude oil prices on EPD?
Management expects an extended period of lower crude and NGL prices to slow drilling in basins farther from the Gulf Coast, which could reduce volumes on EPD's gathering and processing assets. Much of its newer capacity is backed by long-term fee-based commitments, which management believes provide some protection. Marketing margins may also be affected by narrower price spreads.
How significant is the ETP litigation?
A Texas jury found EPD formed a legal partnership with Energy Transfer Partners, and the court entered a judgment of $535.8 million in July 2014. EPD disputes the verdict and is appealing, and it has not recorded a provision because management does not believe payment is probable. The outcome is a material contingent liability for investors to monitor.
What did the Oiltanking acquisition add, and what risks does it carry?
The deal added Houston Ship Channel and Beaumont marine terminals with about 26 MMBbls of storage and 12 docks, supporting LPG and crude exports. The total cost was about $5.9 billion. Risks include integration, the FTC investigation, and a liquidity option for the seller (OTA) that could require EPD to pay up to the fair value of its units from 2020 onward. Oiltanking was excluded from the 2014 internal control assessment.
Is the distribution sustainable, and how is EPD funding growth?
Distributable cash flow of $4.08 billion covered $2.71 billion of distributions paid to limited partners, leaving $1.37 billion retained. EPD funded growth through debt issuance ($4.75 billion of senior notes in 2014) and equity from its DRIP and at-the-market program. Rising leverage and higher interest expense ($921 million in 2014) are key considerations for future distribution growth.
06—Continue