Enterprise Products Partners
Enterprise Products Partners (EPD) is one of the largest master limited partnerships, providing midstream energy services to producers and consumers of natural gas, natural gas liquids (or NGLs), crude oil, refined products, and petrochemicals. The company operates a vast portfolio of energy infrastructure, storage, and transportation assets, based mostly in the U.S. EPD’s services include NGL pipelines and services, onshore natural gas pipelines and services, onshore crude oil pipelines and services, offshore pipelines and services, and petrochemical and refined products services.
As of April 7, 2014, the company had a market cap of $65 billion and an enterprise value of $83 billion. EPD’s revenue for LTM (the last 12 months) as of December 31, 2013, totaled $47.7 billion. Adjusted EBITDA over the same period was $4.7 billion. At a current unit price of $72.23, and given the latest quarterly distribution of $0.70 per unit, EPD has a current yield of 3.9%.
EPD as a component of AMLP
Enterprise Products Partners (EPD) is one of the largest midstream master limited partnerships and a significant component of the Alerian MLP ETF (AMLP). It’s weighted at 9.7%. So factors affecting the performance of EPD would significantly affect the performance of the AMLP ETF as well. Other MLPs that constitute major components of the AMLP ETF include Kinder Morgan Partners (KMP), Plains All American Partners (PAA), and Magellan Midstream Partners (MMP).
Positive growth drivers
EPD is large and diversified, with various sources of income, such as from crude oil pipelines, natural gas liquids pipelines, propane and butane exports, natural gas gathering, processing, and transportation, and crude and liquids logistics. This makes it the largest fully integrated midstream service provider with a positive long-term outlook, given its significant geographic and business diversity, even as EPD’s midstream asset base covers most major domestic gas producing basins (the Eagle Ford, Permian, and Bakken). As of year-end 2013, EPD’s leverage (debt-to-EBITDA ratio) was 3.5x, which is in line with most large-cap midstream MLPs (~3x to 4x is normal). Also, the string of organic growth projects (~$2.3 billion so far in 2014, with another ~$5.5 billion of projects to be completed through 2016), strong balance sheet, and solid liquidity position make it attractive to investors.
Investors are also attracted to midstream MLPs like Enterprise Products Partners LP (EPD) because they tend to offer reliable distributions, as unlike oil and gas companies that have direct commodity price exposure, midstream companies are frequently able to take advantage of booming energy plays without the commodity risk, which makes them compelling opportunities in the near term.
Negative growth drivers and risks
Downside risks include supply chain disruptions (as EPD offers a suite of services, many of them dependent on each other), the loss of key customers, and a sustained period of low natural gas prices. Any of these risks could negatively impact volumes at EPD’s pipelines and storage facilities and demand for gathering, processing, and storage of natural gas and NGLs. Also, NGL and crude prices can be very volatile, and weakness in crude, NGL, or fractionation spreads could impact EPD’s cash flow and earnings. From a macro perspective, an increasing interest rate environment could be considered a major risk, given EPD’s need to externally finance growth initiatives, which includes ~$5.5 billion of projects to be completed through 2016.
To find out about other major components of AMLP, read on to the next part of this series.