01—Abstract
Summary
Summary of the 10-K filed February 28, 2018. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) reported 2017 total revenues of $29.24 billiona, up roughly 27% from $23.02 billion in 2016, driven mainly by higher commodity prices in NGL, crude oil and petrochemical marketing. Net income attributable to limited partners rose to $2.80 billion ($1.30 per unit) from $2.51 billion ($1.20 per unit), and total non-GAAP gross operating margin increased to $5.68 billion from $5.25 billion. Growth came from fee-based segments such as NGL pipelines, the Midland-to-ECHO crude pipeline, and Morgan's Point ethane export capacity, while Hurricane Harvey reduced 2017 gross operating margin by an estimated $46 million.
The partnership's financial position remains large and leveraged. Total debt principal was about $24.8 billionb at year-end, and liquidity was $3.75 billion. Operating cash flow rose to $4.67 billion, and distributable cash flow of $4.50 billion covered distributions at 1.24x.
Capital spending was about $3.4 billionc in 2017 and is planned at roughly $3.3 billion for 2018, which the company expects to fund partly with equity and debt issuance. Management plans to raise the quarterly distribution by $0.0025 per unit each quarter through 2018, and it expects to be self-funding for the equity portion of capital spending by 2019.
Key risks include exposure to commodity price volatility, customer concentration (Vitol was 11.2% of revenue), a long-running ETP litigation matter (the appellate court reversed the $535.8 milliond judgment, but ETP sought Texas Supreme Court review), a PDH facility construction dispute, FERC rate proceedings affecting Seaway, and rising interest-rate exposure. Investors should weigh the strong fee-based growth pipeline and distribution coverage against high leverage and commodity-linked earnings.
02—Key points
Key Highlights
- Revenue rose 27% to $29.2 billion and net income attributable to limited partners rose 11% to $2.80 billion, or $1.30 per unit (vs. $1.20 in 2016).
- Total non-GAAP gross operating margin increased 8% to $5.68 billion, led by NGL Pipelines & Services ($3.26 billion, up 9%) and Crude Oil Pipelines & Services ($987 million, up 16%).
- Distributable cash flow was $4.50 billion, covering distributions 1.24x; the quarterly distribution was $0.4250 for Q4 2017, with planned increases to $0.4350 by Q4 2018.
- Operating cash flow increased to $4.67 billion from $4.07 billion, while 2017 capital spending was about $3.4 billion and 2018 capex is guided to about $3.3 billion.
- Large project pipeline includes the Midland-to-ECHO crude pipeline (limited service Nov. 2017), Orla natural gas plants, the Shin Oak NGL pipeline (Q2 2019), the ninth Mont Belvieu fractionator, and a new ethylene export terminal (Q1 2020).
- Debt principal totaled about $24.8 billion at year-end 2017, with $3.75 billion of liquidity and investment-grade ratings (BBB+/Baa1/BBB+); the company issued $2.7 billion of notes in February 2018.
- Material legal matters include the ETP partnership suit (reversed on appeal in July 2017, with review petitioned to the Texas Supreme Court) and the PDH contractor litigation against Amec Foster Wheeler.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Enterprise Products Partners L.P. kept $0.10.
- Revenue$29.24B100.0%
- Cost of revenue−$21.49B73.5%
- Gross profit$7.75B26.5%
- Operating costs−$3.83B13.1%
- Operating income$3.93B13.4%
- Interest, other & tax−$1.13B3.9%
- Net income$2.80B9.6%
Where FY2017 revenue went
$29.24B- Cost of revenue: $21.49B, 73% of revenue
- Operating costs: $3.83B, 13% of revenue
- Net income: $2.80B, 9.6% of revenue
- Interest, other & tax: $1.13B, 3.9% of revenue
Kept 9.6% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 28, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $29.24B$23.02B | +27.0% |
| Cost of Revenue | $21.49B$15.71B | +36.8% |
| Gross Profit | $7.75B$7.31B | +6.1% |
| Operating Expenses | $25.74B$19.80B | +30.0% |
| Operating Income | $3.93B$3.58B | +9.7% |
| Interest Expense | $984.60M$982.60M | +0.2% |
| Net Income | $2.80B$2.51B | +11.4% |
| Shares Outstanding (Diluted) | 2.15B2.09B | +3.1% |
05—Questions
Frequently Asked Questions
What drove the large increase in revenue in 2017?
Most of the $6.2 billion revenue increase came from higher commodity prices. Crude oil, NGL and petrochemical marketing revenues rose sharply on higher sales prices, and volumes also increased. Fee-based midstream service revenues rose only about $95 million, so the top-line jump is largely price-driven and is partly offset by higher cost of sales.
Is the distribution safe, and how fast will it grow?
Coverage was 1.24x in 2017 based on distributable cash flow, which the company views as sufficient. Management plans to recommend quarterly increases of $0.0025 per unit through Q4 2018, reaching $0.4350. The Board must approve each payment, and the company says it expects to be self-funding for the equity portion of capital spending by 2019. Coverage in 2017 was higher than 2016 (1.21x) but well below 2015 (1.85x), after cash flow was retained in prior years.
What is the biggest legal risk?
The ETP matter is the largest. A 2014 trial judgment of $535.8 million was reversed by the Texas appeals court in July 2017, which ruled that ETP takes nothing on its claims. ETP petitioned the Texas Supreme Court in December 2017, and management says a payment is not probable, so no provision is recorded. A separate PDH dispute involves the former general contractor, which the company is pursuing as plaintiff.
How concentrated is the customer base?
Concentration is modest but notable. Vitol Holding B.V. accounted for 11.2% of 2017 consolidated revenues ($3.29 billion), spread across NGL, crude oil, natural gas and petrochemical segments. Otherwise the company says its revenues come from a wide customer base, though its credit exposure is concentrated among integrated oil companies, independent producers and other pipelines.
How exposed is the company to commodity prices and interest rates?
The company uses hedges, fee-based contracts and a portion of commodity-based processing contracts to limit exposure, but it still bears commodity risk on keepwhole, percent-of-liquids and marketing activities. Hurricane Harvey cut 2017 margin by about $46 million. On the debt side, $21.48 billion of fixed-rate notes and $1.76 billion of commercial paper leave it exposed to rising rates, which management noted as a risk given expected Federal Reserve hikes.
06—Continue