01—Abstract
Summary
Summary of the 10-K filed February 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) reported 2015 results that reflect a sharp drop in commodity-driven revenue alongside steady growth in fee-based midstream earnings. Total revenues fell to $27.03 billiona from $47.95 billion, driven mainly by lower NGL, crude oil and natural gas sales prices, while operating income declined modestly to $3.54 billion from $3.78 billion and net income attributable to limited partners fell to $2.52 billion from $2.79 billion. Total segment gross operating margin, the partnership's preferred core profitability measure, rose slightly to $5.33 billion from $5.29 billion, which management attributes to newly completed assets such as Aegis, ATEX, the Houston Ship Channel LPG export terminal, and the acquisitions of Oiltanking and EFS Midstream.
Balance sheet and cash flow highlights are mixed. Distributable cash flow rose to $5.61 billionb (versus $4.08 billion), giving a distribution coverage ratio of 1.85x, but much of the increase reflects $1.6 billion of asset-sale proceeds, mainly the $1.53 billion sale of the Offshore Business. Operating cash flow fell slightly to $4.00 billion.
Total debt principal reached $22.74 billionc, with liquidity of $4.4 billion. The partnership funded roughly $6.4 billion of total capital spending in 2015, including the $2.1 billion EFS Midstream acquisition, partly through about $1.2 billion of common unit issuances, and it guides to $3.8-4.1 billion of 2016 capital spending.
Looking ahead, management plans a 5.2% distribution increase to $1.61d per unit for 2016, and it expects several growth projects (the ethane export terminal, the South Eddy and Delaware Basin plants, and the PDH facility) to enter service in 2016-2017. Risks investors should weigh include a $535.8 million ETP judgment the company is appealing without an accrual, an ongoing FTC investigation into the Oiltanking acquisition, volume shortfalls and make-up rights on several pipelines tied to low commodity prices, a PDH construction schedule revision, and weak producer activity in the Eagle Ford, Rockies and Haynesville regions.
02—Key points
Key Highlights
- Total revenues declined 43.6% to $27.03 billion in 2015 from $47.95 billion in 2014, primarily from lower commodity sales prices; operating income fell 6.2% to $3.54 billion.
- Total segment gross operating margin edged up to $5.33 billion (from $5.29 billion), led by Crude Oil Pipelines & Services (+26%) and Petrochemical & Refined Products Services (+5%), offset by NGL Pipelines & Services (-4%) and Offshore (sold July 2015).
- Net income attributable to limited partners was $2.52 billion, or $1.26 diluted per unit, versus $2.79 billion, or $1.47, in 2014.
- Distributable cash flow rose to $5.61 billion, supporting a 1.85x distribution coverage ratio, though it includes $1.61 billion of asset-sale and insurance proceeds, principally from the $1.53 billion Offshore Business sale.
- Total debt principal of $22.74 billion; credit ratings BBB+ (S&P) and Baa1 (Moody's); $4.4 billion of consolidated liquidity at year-end 2015.
- The board is planned to raise the 2016 distribution to $1.61 per unit (+5.2%), with quarterly payments of $0.395-$0.410, and 2016 capital spending guided to $3.8-4.1 billion.
- Unreserved $535.8 million judgment in the ETP litigation (under appeal) and an open FTC civil investigation into the Oiltanking acquisition represent the principal legal contingencies.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Enterprise Products Partners L.P. kept $0.09.
- Revenue$27.03B100.0%
- Cost of revenue−$19.61B72.6%
- Gross profit$7.42B27.4%
- Operating costs−$3.87B14.3%
- Operating income$3.54B13.1%
- Interest, other & tax−$1.02B3.8%
- Net income$2.52B9.3%
Where FY2015 revenue went
$27.03B- Cost of revenue: $19.61B, 73% of revenue
- Operating costs: $3.87B, 14% of revenue
- Net income: $2.52B, 9.3% of revenue
- Interest, other & tax: $1.02B, 3.8% of revenue
Kept 9.3% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 26, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $27.03B$47.95B | −43.6% |
| Cost of Revenue | $19.61B$40.46B | −51.5% |
| Gross Profit | $7.42B$7.49B | −1.0% |
| Operating Expenses | $23.86B$44.44B | −46.3% |
| Operating Income | $3.54B$3.78B | −6.2% |
| Interest Expense | $961.80M$921.00M | +4.4% |
| Net Income | $2.52B$2.79B | −9.6% |
| Shares Outstanding (Diluted) | 2.00B1.90B | +5.5% |
05—Questions
Frequently Asked Questions
Why did revenue fall by more than 40% while gross operating margin stayed flat?
Most of the revenue decline came from marketing sales of crude oil, natural gas and NGLs, where lower commodity prices reduced both sales and purchase costs. Because the partnership's fee-based midstream businesses and equity earnings are reported in gross operating margin, that metric was largely insulated from commodity price declines and rose slightly, supported by new assets and the Oiltanking and EFS Midstream acquisitions.
How secure is the 2016 distribution, and what is the coverage outlook?
Management plans to recommend $1.61 per unit for 2016, a 5.2% increase, and reported 2015 coverage of 1.85x. Coverage was flattered by roughly $1.6 billion of one-time asset-sale proceeds. The filing also notes that shippers on several new pipelines are missing minimum volume commitments and that producers are cutting drilling, so coverage excluding asset sales deserves close scrutiny. The company also states that the temporary Designated Units distribution waiver expired, so 2016 distributions will include all EPCO-held units.
What are the most significant legal and financial risks disclosed?
The largest item is the ETP judgment of $535.8 million, which includes $319.4 million of damages, $150.0 million of disgorgement and $66.4 million of prejudgment interest. The company is appealing and has not recorded a provision because payment is not considered probable. Separately, the FTC and the Texas Attorney General are investigating the Oiltanking acquisition, and the outcome cannot be predicted. Debt maturities also step up from $1.86 billion in 2016 to $1.5 billion annually in 2019-2020.
What growth projects drive future earnings, and what could delay them?
Key 2016-2017 projects include the Houston Ship Channel ethane export terminal (expected Q3 2016), the South Eddy and Delaware Basin plants (2016), the Midland-to-Sealy crude pipeline (which shippers have asked to delay by up to a year), and the PDH facility, now expected to begin commercial operations in Q2 2017 after a change of contractor. Management also cites about $2.7 billion of major projects entering service in 2016. Cost overruns, schedule slips and weaker producer drilling in the Eagle Ford, Rockies and Haynesville could delay returns.
Does the EFS Midstream acquisition affect internal controls or reporting?
Yes. Management excluded EFS Midstream from its 2015 assessment of internal control over financial reporting because the acquisition was recent. Deloitte's audit opinion carves out the same entity, which represents about 0.44% of consolidated revenues and 2.98% of total assets. Management expects to complete its control integration during 2016, and the approximately $1.0 billion final installment for EFS is due by July 2016.
06—Continue