Business context and reporting period
Enterprise Products Partners L.P. (NYSE: EPD) is a North American midstream energy partnership operating natural gas, NGL, crude oil, petrochemical and refined-products infrastructure. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Unless noted, dollar amounts are in millions.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $11,998 | $15,468 | $35,093 | $44,536 |
| Operating income | $1,695 | $1,712 | $5,008 | $5,142 |
| Net income | $1,350 | $1,392 | $4,055 | $4,163 |
| Net income attributable to common unitholders | $1,318 | $1,360 | $3,961 | $4,067 |
| Basic and diluted earnings per common unit | $0.60 | $0.62 | $1.81 | $1.85 |
| Total gross operating margin (non-GAAP) | $2,331 | $2,321 | $6,847 | $6,941 |
- Cash flow: Nine-month operating cash flow was $5,203, versus $5,314 in 2022. Capital expenditures were $2,254, versus $1,203; operating cash flow less capital expenditures was therefore $2,949, versus $4,111. Cash used in investing was $2,220 and cash used in financing was $2,875.
- Distributions and coverage: Nine-month distributable cash flow (DCF, non-GAAP) was $5,542, down from $5,723. Distribution coverage was 1.7x, versus 1.8x. The partnership declared a Q3 distribution of $0.50 per common unit ($2.00 annualized), payable November 14, 2023.
- Debt and liquidity: Consolidated debt principal was $29.2 billion at September 30, 2023; average maturity was approximately 19.3 years. Available consolidated liquidity was $3.8 billion, including $3.6 billion of available revolver capacity and $171 million of unrestricted cash. The partnership reported compliance with debt covenants.
- Margins: Q3 gross operating margin was nearly flat year over year; nine-month margin declined about 1%. Q3 segment margin was mixed: NGL Pipelines & Services $1,196 (down from $1,296); Crude Oil Pipelines & Services $432 (up from $415); Natural Gas Pipelines & Services $239 (down from $278); Petrochemical & Refined Products Services $453 (up from $353).
- Balance sheet: Total assets were $69.8 billion, compared with $68.1 billion at year-end 2022. Cash and cash equivalents were $171; inventory rose to $3,345 from $2,554.
Material changes versus the prior comparable period
- Revenue fell 22% in Q3 and 21% for the nine-month period, primarily because lower commodity prices reduced marketing sales values. Management noted that associated cost of sales also declined; revenue movements from marketing do not necessarily indicate similar changes in margin or cash available for distribution.
- Midstream services revenue increased $133 in Q3, while nine-month midstream services revenue decreased $41. Higher transportation demand and new assets supported activity; lower equity NGL values and expired minimum-volume commitments weighed on certain results.
- Net income attributable to common unitholders declined about 3% in both comparison periods. Nine-month operating cash flow was down $111, while capital spending rose by $1,051.
- Q3 2023 gross operating margin was supported by crude oil and petrochemical/refined-products businesses, offset by lower NGL and natural-gas segment margins. New capacity entering service included PDH 2, Frac 12 and the Poseidon processing plant.
Outlook, management commentary, risks and unusual items
- Management stated it expects sufficient liquidity, operating cash flow and capital-market access to fund foreseeable capital investments and working capital needs. The filing gives no earnings or DCF guidance.
- Management expected 2023 capital investments, net of noncontrolling-interest contributions, of approximately $3.4 billion: $3.0 billion growth and $400 million sustaining. Approximately $6.8 billion of growth projects were scheduled for completion by the first half of 2026, subject to execution and market conditions.
- October announcements included Permian-area projects scheduled mainly for 2025 and conversion of a pipeline segment back to NGL service, expected in December 2023. SPOT, a proposed offshore crude oil terminal, remained subject to permitting and other requirements; the partnership could not assure when or whether it would proceed.
- Commodity prices, marketing margins, volumes, interest rates, inflation, operating costs, weather, regulation, customer performance and capital-market access may affect results. The company uses derivatives and fee-based contracts to manage, but not eliminate, exposures. It warned that prolonged high inflation could harm results if costs outpace revenue increases.
- There were no litigation contingency accruals at September 30, 2023. Several environmental or regulatory matters were disclosed; management did not expect related expenditures to be material. The partnership has no employees and relies on EPCO and other service providers; it reported $1.127 billion of related-party costs and expenses for nine months.
- Following quarter-end, amendments extended the vesting terms for certain employee partnership incentive interests. The partnership also disclosed that EPCO affiliates owned 32.3% of common units and had pledged some units as collateral under their own credit facilities.
Important facts for investors to verify
- Whether lower commodity prices and marketing margins continue to affect segment profitability, and whether new fee-based capacity translates into sustained volume and margin growth.
- Progress, spending and completion schedules for the $6.8 billion growth-project pipeline and 2023 capital-investment plan.
- Distribution sustainability: DCF coverage declined to 1.7x for the nine-month period, and future distributions remain subject to management review and board approval.
- Debt refinancing and interest-rate exposure, including near-term maturities of $620 million commercial paper and $850 million senior notes due in 2024; assess liquidity and covenant headroom.
- Permitting and authorization status for SPOT, as well as outcomes of disclosed environmental and regulatory matters.
- Related-party arrangements, governance and pledged affiliate-held units; review the full filing and referenced risk factors for details.