01—Abstract
Summary
Summary of the 10-K filed February 28, 2020. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) reported full-year 2019 results with revenues of $32.79 billiona (down from $36.53 billion, primarily on lower commodity prices), operating income of $6.08 billion (up 12%), and net income attributable to limited partners of $4.59 billion ($2.09 per unit vs. $1.91 in 2018). Gross operating margin rose to a non-GAAP $8.27 billion, driven by Crude Oil Pipelines & Services (up about $576 million, largely from the Midland-to-ECHO system) and NGL Pipelines & Services (up about $239 million net, with Shin Oak and Mont Belvieu storage contributing). Distribution coverage was approximately 1.7x on distributable cash flow of $6.62 billion, and the partnership declared $1.765 per unit for 2019 with plans for a $0.0025 per quarter increase in 2020.
The balance sheet grew substantially, with total assets of $61.7 billionb and total debt principal of $27.9 billion, funded in part by a $2.5 billion senior notes issuance in July 2019 and a $3.0 billion issuance in January 2020. Growth capital spending was $4.2 billion in 2019, and management guided to 2020 total capital investments of $3.4 to $4.4 billion, with $7.7 billion of growth projects scheduled through 2023. Liquidity stood at $4.85 billion, and credit ratings were BBB+/Baa1/BBB+ at the filing date.
Key subsequent and risk events include the February 25, 2020 exercise of the Liquidity Option by Marquard & Bahls, which will require EPD to acquire 54.8 million units from OTA (expected to be settled in newly issued units, so unit count is unchanged), and the Texas Supreme Court's January 31, 2020 affirmance of the reversal of the $535.8 millionc ETP judgment, which removes a major contingent liability. Investors should also note COVID-19 demand and price headwinds described in the outlook, and that the company reported Vitol as a 10.1% customer.
02—Key points
Key Highlights
- Operating income rose 12.4% to $6.08 billion; net income attributable to limited partners rose 10% to $4.59 billion ($2.09 per unit).
- Total gross operating margin (non-GAAP) increased to $8.27 billion from $7.33 billion, led by Crude Oil Pipelines & Services (+$576.5 million) on Midland-to-ECHO growth.
- Distribution coverage ratio of approximately 1.7x; 2019 distributions of $1.765 per unit, with a planned 2020 increase to $1.805 (+2.3%).
- Growth capital program is large: $4.2 billion spent in 2019, $3.4-$4.4 billion guided for 2020, and $7.7 billion of projects scheduled through 2023 (Frac X/XI, Midland-to-ECHO 3 and 4, PDH 2, Acadian expansion).
- Debt principal of $27.9 billion with a leverage target of about 3.5x; $3.0 billion of senior notes issued in January 2020, and $4.85 billion of liquidity at year-end.
- Liquidity Option exercised February 25, 2020 for 54.8 million units held by OTA, to be settled in newly issued units with no net increase in units outstanding; the $509.6 million liability reflects deferred tax exposure.
- ETP litigation resolved in EPD's favor when the Texas Supreme Court affirmed the Dallas Court of Appeals' reversal of the $535.8 million judgment on January 31, 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Enterprise Products Partners L.P. kept $0.14.
- Revenue$32.79B100.0%
- Cost of revenue−$22.07B67.3%
- Gross profit$10.72B32.7%
- Operating costs−$4.64B14.2%
- Operating income$6.08B18.5%
- Interest, other & tax−$1.49B4.5%
- Net income$4.59B14.0%
Where FY2019 revenue went
$32.79B- Cost of revenue: $22.07B, 67% of revenue
- Operating costs: $4.64B, 14% of revenue
- Net income: $4.59B, 14% of revenue
- Interest, other & tax: $1.49B, 4.5% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 28, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $32.79B$36.53B | −10.3% |
| Cost of Revenue | $22.07B$26.79B | −17.6% |
| Gross Profit | $10.72B$9.74B | +10.0% |
| Operating Expenses | $27.27B$31.61B | −13.7% |
| Operating Income | $6.08B$5.41B | +12.4% |
| Interest Expense | $1.24B$1.10B | +13.3% |
| Net Income | $4.59B$4.17B | +10.0% |
| Shares Outstanding (Diluted) | 2.20B2.19B | +0.7% |
05—Questions
Frequently Asked Questions
How did Enterprise's profitability change in 2019?
Operating income increased to $6.08 billion from $5.41 billion, and net income attributable to limited partners rose to $4.59 billion from $4.17 billion. Revenue fell about 10% to $32.8 billion, mainly because of lower commodity sales prices, while gross operating margin grew, reflecting stronger pipeline and storage fees and the start-up of new assets such as Shin Oak and Midland-to-ECHO 2.
Is the distribution safe, and how much cash does it retain?
Distributable cash flow was $6.62 billion against $3.89 billion of cash distributions paid to limited partners, a 1.70x coverage ratio. About $2.74 billion of DCF was retained and mainly reinvested in growth projects. The company plans to recommend a $0.0025 per unit quarterly increase for 2020, though the Board must approve each payment.
What are the main risks from the Liquidity Option and the debt load?
The Liquidity Option exercise obligates EPD to acquire OTA, which carries deferred tax liabilities (liability of $509.6 million at year-end) and is expected to be settled in units, so dilution is not expected. Debt of $27.9 billion, with about $2.65 billion of junior subordinated notes, leaves limited flexibility if rates rise or if credit ratings are downgraded, although the company reports BBB+/Baa1/BBB+ ratings and $4.85 billion of liquidity.
What did management say about 2020 demand and prices?
Management cited COVID-19 as a near-term headwind to global demand, particularly in Asia, and WTI had fallen roughly 22% year-to-date by late February 2020. Longer-term, it expects continued growth in U.S. NGL, LPG, and ethane exports, supported by Permian and Haynesville production growth, and expects long-term liquid hydrocarbon demand to hold through 2040.
Has the largest legal overhang been resolved?
Yes, in part. The Texas Supreme Court on January 31, 2020 affirmed the 2017 Dallas Court of Appeals decision that reversed the $535.8 million ETP judgment, leaving EPD with no provision recorded. The separate PDH 1 contractor litigation against Amec Foster Wheeler is still pending, and EPD recorded no contingent liability for it.
06—Continue