01—Abstract
Summary
Summary of the 8-K filed February 1, 2024. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners (EPD) reported fourth-quarter and full-year 2023 results on February 1, 2024, showing a resilient performance despite significantly weaker commodity prices and natural gas processing margins versus 2022.
Full-year 2023 net income attributable to common unitholders was $5.5 billiona ($2.52 per fully diluted common unit, up from $2.50), total gross operating margin was $9.4 billion (up slightly from $9.3 billion), and Adjusted EBITDA was $9.3 billion, roughly flat year over year. Operational DCF was $7.5 billion versus $7.6 billion in 2022, providing 1.7x coverage of distributions declared for 2023. Management attributed the stability to growth in fee-based businesses, including a 9% increase in pipeline volumes, a 20% increase in marine terminal volumes, and a 16% increase in NGL fractionation volumes.
Cash flow and capital allocation were the standout items. Adjusted free cash flow rose to $4.8 billionb from $3.0 billion, largely because of a working-capital swing, and the partnership's payout ratio was 56% of Adjusted CFFO and 94% of Adjusted FCF. Distributions declared for 2023 rose 5.3%, marking the 25th consecutive year of distribution growth.
The fourth-quarter distribution was increased 5.1% to $0.515c per common unit, covered 1.8x by DCF. Enterprise also completed $3.5 billion of growth projects in 2023, including new Permian gas processing plants and the 12th NGL fractionator, and it begins 2024 with $6.8 billion of major projects under construction. Total debt principal was $29.0 billion, with approximately $3.9 billion of consolidated liquidity.
Investors should note several watch items. The PDH 2 propane dehydrogenation facility ran at only about 20% utilization in the fourth quarter after commissioning issues, and management expects improvement in 2024. Interest expense rose to $1.27 billiond, and the timing of 2023 K-1 tax packages depends on pending federal tax legislation (H.R.
7024), which could delay availability beyond the stated February 29, 2024 target. Management guided 2024 growth capital spending to $3.25 to $3.75 billion and sustaining capital to about $550 million.
02—Key points
Key Highlights
- FY2023 net income attributable to common unitholders was $5.5 billion, or $2.52 per fully diluted unit, versus $2.50 in 2022, despite lower commodity prices and weaker natural gas processing margins.
- Adjusted FCF nearly doubled to $4.8 billion (from $3.0 billion), though this was boosted by a $555 million favorable swing in operating working capital; Adjusted CFFO was flat at $8.1 billion.
- Distributable cash flow coverage was 1.7x for 2023 distributions and 1.8x for the Q4 2023 distribution; Operational DCF was $7.5 billion versus $7.6 billion in 2022.
- Distributions declared for 2023 rose 5.3%, the 25th consecutive year of distribution growth; the Q4 2023 distribution increased 5.1% to $0.515 per unit.
- Fee-based volume growth was strong: pipeline volumes up 9% to 12.2 million BPD, marine terminal volumes up 20% to 2.1 million BPD, and NGL fractionation up 16% to 1.6 million BPD.
- The partnership ended 2023 with $29.0 billion of debt principal and about $3.9 billion of liquidity, and it repurchased $187 million of common units in 2023 (46% of the $2.0 billion program used to date).
- Risks include PDH 2 running at roughly 20% utilization in Q4 2023 after operational issues, and K-1 tax package timing that depends on pending legislation (H.R. 7024).
03—Questions
Frequently Asked Questions
Did Enterprise Products Partners grow earnings in 2023?
Only marginally. Net income attributable to common unitholders was $5.5 billion in both years, and fully diluted earnings per unit rose to $2.52 from $2.50. Total gross operating margin was $9.4 billion versus $9.3 billion, and Adjusted EBITDA was $9.3 billion, essentially flat. Management said the results were comparable to the record 2022 year despite significantly lower commodity prices and natural gas processing margins.
Is the distribution safe and growing?
The distribution is covered and still growing. DCF covered 2023 declared distributions 1.7 times, and the Q4 2023 distribution of $0.515 per unit was covered 1.8 times. Distributions declared for 2023 rose 5.3%, the 25th consecutive year of growth. However, distributions plus buybacks equaled 94% of Adjusted FCF, leaving limited room for additional buybacks or debt reduction beyond retained cash flow, which totaled $3.2 billion in 2023.
Why did free cash flow improve so much?
Adjusted FCF rose to $4.8 billion from $3.0 billion mainly because of working capital. The net effect of changes in operating accounts contributed a $555 million benefit in 2023, compared with a $54 million benefit in 2022. Adjusted CFFO, which excludes working-capital effects, was essentially unchanged at $8.1 billion, so investors should treat the improvement in Adjusted FCF as partly timing-related.
What growth projects are coming online, and what is the capital plan for 2024?
Enterprise completed $3.5 billion of growth projects in 2023, including two Permian natural gas processing plants and the 12th NGL fractionator at Chambers County. It began 2024 with $6.8 billion of major projects under construction, of which $1.1 billion, including the Texas Western Products System and two Permian gas plants, is scheduled for completion in 2024. For 2024, growth capital is expected at $3.25 to $3.75 billion and sustaining capital at about $550 million.
What are the main risks or concerns highlighted in this release?
The PDH 2 propane dehydrogenation plant, which began commercial operations in Q3 2023, ran at only about 20% utilization in Q4 and contributed little to 2023 earnings because of process and mechanical problems; management expects higher utilization in 2024. Natural gas processing margins were weak, and interest expense rose to $1.27 billion. Also, the timing of 2023 K-1 tax packages could slip past the February 29, 2024 target if pending legislation (H.R. 7024) changes the tax treatment.
04—Continue