uploads/2014/11/Returns3.jpg

Why Enterprise Products Partners is a solid investment

By

Updated

Solid investment

We analyzed Enterprise Products Partners’ (EPD) 3Q14 results. We also looked at its various capital projects in the pipeline. Does the company’s growth chart interest investors?

Outperformed in 2014

Year-to-date (or YTD) 2014, EPD outperformed the industry and broader market. EPD’s stock returned ~20% YTD. On an annualized basis, this means an ~24% return.

Returns

In comparison, the Alerian MLP ETF (AMLP) returned 11.4% YTD—or 13.6% annualized. The SPDR S&P 500 ETF (SPY) is up 12.7% YTD—or ~15% annualized.

EPD also outperformed its industry peer—Plains All American LP (PAA). It underperformed Kinder Morgan Energy Partners (KMP). YTD, PAA returned 10.3%. KMP’s return was 26.2%. Other midstream operators that exceeded the broad market performance in 2014 include Williams Companies (WMB) and Kinder Morgan Energy Inc. (KMI).

What’s driving EPD?

  • A diversified and flexible midstream portfolio. It doesn’t depend on any particular commodity.
  • Access to some of the fastest growing shale plays—like Barnett, Eagle Ford, Haynesville, Marcellus, Utica, and San Juan basins.
  • New liquefied petroleum gas (or LPG), ethane, and natural gas liquid (or NGL) export infrastructure to propel growth.
  • Complementary asset acquisitions to gain access to marine transportation. Read our article on “Enterprise Products Partners acquires Oiltanking Partners” to learn why.
  • 5.8% higher annualized cash distributions. In 3Q14, EPD increased cash distributions to $0.365 per unit—or $1.46 per unit—annualized.
  • NGL, crude oil, refined products, and petrochemical pipeline volumes for the first nine months in 2014 increased 7% to a record 5.2 million barrels per day (or bpd)—from 4.85 million barrels per day (or MMbbls/d) in the first nine months in 2013. Higher sales price realized across all the categories.
  • Increased midstream activity with the recently completed ATEX pipeline and Rocky Mountain expansion of the Mid-America Pipeline System.
  • Fee-based natural gas processing volumes for the first nine months in 2014 increased 6% to 4.87 billion cubic feet per day (or Bcf/d).
  • Marketing activities targeted to bolster operating margins by adding fee-based earnings to leverage demand-supply gaps in the business segments.

What’s the drag?

EPD’s 2014 performance was negatively affected by:

  • Lower West Texas Intermediate (WTI)-Light Louisiana Sweet (LLS) price spread. We’ll discuss this in the next part of the series.
  • Lower natural gas transportation volumes—due to the drilling program being curtailed by some lean gas producers in the Haynesville Shale in response to low natural gas price—and lower transportation volume in EPD’s Texas Intrastate System.

2014 capital spending will come down from what was previously anticipated. Some of the capex shifted to 2015.

More From Market Realist