01—Abstract
Summary
Summary of the 10-K filed March 1, 2021. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) reported a 2020 year marked by the pandemic-driven collapse in energy demand, with consolidated revenues falling to $27.20 billiona from $32.79 billion and net income attributable to common unitholders declining to $3.77 billion from $4.59 billion. Total non-GAAP gross operating margin fell to $8.10 billion from $8.27 billion, while operating income dropped to $5.04 billion. The decline was driven in part by $890.6 million of non-cash asset impairments, including a $296.3 million goodwill write-off in Natural Gas Pipelines & Services and a $256.7 million impairment on the marine transportation business.
Partially offsetting this, NGL Pipelines & Services and Petrochemical & Refined Products Services held up well, with segment gross operating margin rising to $4.18 billionb and $1.08 billion respectively. Cash flow remained solid, with operating cash flow of $5.89 billion and free cash flow of $2.67 billion, which covered distributions. The distribution coverage ratio was 1.63x on distributable cash flow of $6.41 billion, and the quarterly common unit distribution was held at $0.45 per unit.
Liquidity stood at $6.06 billionc, and EPO's senior unsecured debt remains investment grade (BBB+/Baa1/BBB+). Total principal debt is about $30.1 billion, and the company completed roughly $4.25 billion of senior note issuances in 2020, while retiring $1.5 billion. Looking ahead, management guided to 2021 capital investments of about $2.1 billion ($1.6 billion growth, $440 million sustaining), with growth spending expected to step down further in 2022 and 2023 as major projects such as PDH 2 (scheduled for Q2 2023) move toward completion.
Management stated it will evaluate any future distribution increases quarterly, and the 2019 buyback program retains $1.73 billiond of remaining capacity. Key risks include continued volatility in hydrocarbon prices, COVID-19 demand recovery, further potential impairments, the SPOT crude terminal approval timing, and the company's sizable debt load.
02—Key points
Key Highlights
- Consolidated revenues declined 17% to $27.20 billion, mainly due to lower commodity sales prices and volumes in marketing activities.
- Operating income fell to $5.04 billion from $6.08 billion, reflecting $890.6 million in asset impairment charges including the $296.3 million goodwill write-off for the Natural Gas Pipelines & Services segment.
- Distributable cash flow was $6.41 billion and the distribution coverage ratio was 1.63x, while the quarterly distribution held at $0.45 per unit (annualized $1.80).
- NGL Pipelines & Services gross operating margin rose to $4.18 billion, supported by Mont Belvieu fractionation expansions (Frac X and Frac XI) and higher Mont Belvieu-area fractionation volumes.
- Liquidity of $6.06 billion and investment-grade credit ratings (BBB+/Baa1/BBB+) provide financial flexibility; the company issued $4.25 billion of senior notes in 2020.
- 2021 capital investment guidance of approximately $2.1 billion ($1.6 billion growth, $440 million sustaining), with $3.6 billion of growth projects scheduled through 2023 including PDH 2.
- Total principal debt of $30.1 billion remains significant; management noted that future debt levels could constrain flexibility, and the 2019 buyback program retains $1.73 billion of capacity.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Enterprise Products Partners L.P. kept $0.14.
- Revenue$27.20B100.0%
- Cost of revenue−$16.72B61.5%
- Gross profit$10.48B38.5%
- Operating costs−$5.44B20.0%
- Operating income$5.04B18.5%
- Interest, other & tax−$1.26B4.6%
- Net income$3.77B13.9%
Where FY2020 revenue went
$27.20B- Cost of revenue: $16.72B, 61% of revenue
- Operating costs: $5.44B, 20% of revenue
- Net income: $3.77B, 14% of revenue
- Interest, other & tax: $1.26B, 4.6% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed March 1, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $27.20B$32.79B | −17.0% |
| Cost of Revenue | $16.72B$22.07B | −24.2% |
| Gross Profit | $10.48B$10.72B | −2.3% |
| Operating Expenses | $22.59B$27.27B | −17.2% |
| Operating Income | $5.04B$6.08B | −17.2% |
| Interest Expense | $1.29B$1.24B | +3.5% |
| Net Income | $3.77B$4.59B | −17.8% |
| Shares Outstanding (Diluted) | 2.20B2.20B | 0.0% |
05—Questions
Frequently Asked Questions
Is the quarterly distribution at risk given the 2020 earnings decline?
The distribution was held at $0.45 per common unit, and distributable cash flow of $6.41 billion covered total distributions with a 1.63x coverage ratio. However, management stated it will evaluate any future increases quarterly, and the 10-K warns that cash available for distribution could decline if commodity prices or volumes weaken further.
What drove the large impairment charges in 2020?
The company recorded $890.6 million of asset impairments. These included a $296.3 million goodwill write-off for the Natural Gas Pipelines & Services unit due to lower long-term natural gas production outlook and narrower regional price spreads, a $256.7 million impairment on the marine transportation business due to lower demand outlook, and $125.7 million on South Texas gas gathering and processing assets.
How is the company's balance sheet and debt position?
Consolidated liquidity was $6.06 billion at December 31, 2020, comprised of $5.0 billion of undrawn revolver capacity and $1.06 billion of cash. Total senior and junior debt principal was about $30.1 billion, with a weighted-average debt maturity of roughly 20.4 years, and EPO's senior unsecured ratings remain investment grade.
Which segments performed best in 2020?
NGL Pipelines & Services and Petrochemical & Refined Products Services were the strongest performers relative to the rest of the business. NGL segment gross operating margin rose to $4.18 billion from $4.07 billion, driven by fractionation volume growth, while the petrochemical segment rose to $1.08 billion. Crude Oil and Natural Gas segments declined due to lower volumes and marketing margins.
What are the key growth catalysts and timing for investors?
Key projects include PDH 2 (propylene dehydrogenation, expected in service Q2 2023), the Gillis Lateral and Mansfield natural gas projects (Q4 2021), a natural gasoline hydrotreater (Q4 2021), and the proposed SPOT crude export terminal, for which approval is anticipated as early as Q3 2021 but not assured. Growth capital is planned to decline to about $800 million in 2022 and $400 million in 2023 for sanctioned projects.
06—Continue