01—Abstract
Summary
Summary of the 10-K filed February 24, 2017. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) reported full-year 2016 results marked by lower commodity-driven revenue but resilient fee-based cash generation. Total revenues fell to $23.02 billiona from $27.03 billion, driven by lower crude oil and NGL sales prices, while operating income rose modestly to $3.58 billion and net income attributable to limited partners was $2.51 billion, or $1.20 per unit, versus $1.28 in 2015. Total gross operating margin (non-GAAP) declined to $5.25 billion from $5.34 billion, reflecting the 2015 sale of the Offshore Business and weaker crude oil marketing margins, partly offset by growth in NGL pipelines, the Morgan's Point ethane export terminal, and EFS Midstream.
The partnership continued to fund a large growth program: capital spending was $4.12 billionb in 2016 (including the final $1.0 billion EFS Midstream installment), with 2017 capital spending guided to $2.3 to $2.7 billion. Distributable cash flow was $4.10 billion, covering total distributions to limited partners of $3.39 billion at a 1.21x coverage ratio, and the quarterly distribution was raised to $0.41 per unit for the fourth quarter of 2016. Growth was funded substantially by equity: 104 million common units were issued for $2.54 billion of net proceeds, while long-term debt rose to $23.70 billion including current maturities.
Investors should weigh the strong liquidity and investment-grade ratings (BBB+/Baa1) and long-term fee-based contracts against several risks: leverage that continues to rise, a pending $535.8 millionc ETP litigation judgment for which no provision has been recorded, the Seaway FERC rate matters, and exposure to commodity-price-driven marketing results. Management expects producer activity in the Permian, Eagle Ford, Haynesville, and Rockies to recover in 2017, supporting volumes from projects such as the Orla plant and Midland-to-ECHO pipeline.
02—Key points
Key Highlights
- Total revenues declined 14.8% to $23.02 billion in 2016 from $27.03 billion in 2015, mainly due to lower crude oil and NGL sales prices; operating income rose slightly to $3.58 billion.
- Net income attributable to limited partners was $2.51 billion ($1.20 per unit) versus $2.52 billion ($1.28 per unit) in 2015.
- Total non-GAAP gross operating margin was $5.25 billion, down from $5.34 billion, with Crude Oil Pipelines & Services margin down $107 million year over year and NGL Pipelines & Services margin up $219 million.
- Distributable cash flow of $4.10 billion covered $3.39 billion of limited partner distributions at a 1.21x coverage ratio; the Q4 2016 distribution was $0.41 per unit (annualized $1.64).
- 2016 capital spending totaled $4.12 billion, with 2017 capital spending expected at $2.3 to $2.7 billion, including about $250 million of sustaining capital.
- Raised about $2.54 billion of net equity through the ATM program and DRIP/EUPP, issuing 104 million common units to fund growth.
- Liquidity of $3.78 billion at year-end 2016; credit ratings BBB+ (S&P) and Baa1 (Moody's); the ETP judgment of $535.8 million is under appeal with no provision recorded.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Enterprise Products Partners L.P. kept $0.11.
- Revenue$23.02B100.0%
- Cost of revenue−$15.71B68.2%
- Gross profit$7.31B31.8%
- Operating costs−$3.73B16.2%
- Operating income$3.58B15.6%
- Interest, other & tax−$1.07B4.6%
- Net income$2.51B10.9%
Where FY2016 revenue went
$23.02B- Cost of revenue: $15.71B, 68% of revenue
- Operating costs: $3.73B, 16% of revenue
- Net income: $2.51B, 11% of revenue
- Interest, other & tax: $1.07B, 4.6% of revenue
Kept 11% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 24, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $23.02B$27.03B | −14.8% |
| Cost of Revenue | $15.71B$19.61B | −19.9% |
| Gross Profit | $7.31B$7.42B | −1.4% |
| Operating Expenses | $19.80B$23.86B | −17.0% |
| Operating Income | $3.58B$3.54B | +1.1% |
| Interest Expense | $982.60M$961.80M | +2.2% |
| Net Income | $2.51B$2.52B | −0.3% |
| Shares Outstanding (Diluted) | 2.09B2.00B | +4.5% |
05—Questions
Frequently Asked Questions
How did Enterprise Products Partners perform financially in 2016?
Revenue fell about 15% to $23.02 billion because commodity prices were much lower, but operating income increased to $3.58 billion and net income attributable to limited partners was $2.51 billion. Earnings per unit declined to $1.20 from $1.28, largely because of more units outstanding and the 2015 Offshore Business sale.
Is the distribution safe, and how well is it covered?
Distributable cash flow of $4.10 billion covered total distributions paid to limited partners of $3.39 billion, a 1.21x coverage ratio, down from 1.85x in 2015 when Offshore sale proceeds boosted cash flow. Management raised the quarterly distribution each period and says operations should support payouts at comparable levels, though distributions are not guaranteed.
What are the main risks investors should watch?
Key risks include rising debt (about $23.9 billion in principal), reliance on equity issuance to fund growth, commodity price exposure in marketing and certain keepwhole and percent-of-liquids contracts, FERC rate proceedings affecting Seaway and interstate liquids pipelines, and the $535.8 million ETP judgment, which the company is appealing and for which it has not recorded a provision.
What growth projects are expected to drive future results?
Projects include the Morgan's Point ethane export terminal (placed in service September 2016), the Waha and South Eddy gas plants, the Orla gas plant (expected Q2 2018), the propane dehydrogenation facility (commercial operations expected mid-2017), the Midland-to-ECHO crude pipeline (initial service Q4 2017), and an isobutane dehydrogenation unit (expected Q4 2019). About $6.7 billion of growth projects are scheduled for completion by 2020, and many are backed by long-term fee-based commitments.
What is the outlook for 2017 commodity markets and volumes?
Management expects crude oil to trade in roughly the $50 to $60 per barrel range through 2020 after OPEC-led production cuts, and expects increased producer activity in the Permian, Eagle Ford, Haynesville, and Rockies. Eagle Ford and Rockies volumes are still below peak, so the company says midstream capacity remains available there until production recovers.
06—Continue