Enterprise Products Partners L.P. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; comparative periods are the corresponding 2021 periods. Amounts are in U.S. dollars. Enterprise is a North American midstream energy partnership operating across NGL, crude oil, natural gas, petrochemical and refined-products businesses.
Financial highlights
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $15.468B | $10.832B | $44.536B | $29.437B |
| Operating income | $1.712B | $1.513B | $5.142B | $4.700B |
| Net income attributable to common unitholders | $1.360B | $1.153B | $4.067B | $3.606B |
| Basic and diluted earnings per unit | $0.62 | $0.52 | $1.85 | $1.64 |
| Operating cash flow | — | — | $5.314B | $6.387B |
| Distributable cash flow (non-GAAP) | $1.868B | $1.613B | $5.723B | $4.949B |
- Revenue and earnings: Q3 revenue increased about 43% year over year, while common-unitholder net income rose about 18%. For the nine months, revenue increased about 51% and common-unitholder net income about 13%.
- Revenue quality and margins: Revenue growth primarily reflected higher commodity prices and sales volumes in marketing activities, which also raised cost of sales. Q3 operating income margin was about 11.1%, versus 14.0% in Q3 2021; the filing attributes much of the large revenue and cost increases to commodity marketing. Non-GAAP total gross operating margin was $2.321B in Q3, versus $2.089B, and $6.941B for nine months, versus $6.474B.
- Cash generation and distributions: Nine-month operating cash flow fell about 17%, primarily because of working-capital use, despite higher earnings. DCF increased; its distribution coverage ratio was 1.8x for both Q3 and the nine-month period, compared with 1.6x and 1.7x, respectively, in 2021. The partnership declared a Q3 distribution of $0.475 per unit ($1.90 annualized), totaling about $1.04B including distribution-equivalent rights.
- Liquidity and debt: September 30 cash was $167M, with $88M of restricted cash. Management reported $3.3B of consolidated liquidity, including $3.1B of available revolving-credit capacity after commercial paper borrowings and $167M of unrestricted cash. Debt principal totaled $29.5B; current maturities were $2.654B and long-term debt was $26.548B. The average debt maturity was approximately 19.7 years, and the partnership reported compliance with debt covenants.
- Capital allocation: Nine-month capital expenditures were $1.203B; the Navitas Midstream acquisition used $3.204B net cash. The partnership paid $3.061B in common-unit distributions and repurchased $107M of units during the nine months.
Material changes and operating performance
- Q3 and nine-month revenue gains were led by NGL, crude oil and natural gas marketing, reflecting higher average selling prices and volumes. Corresponding purchase costs rose substantially, so revenue growth should not be read as equivalent growth in profitability.
- Q3 segment gross operating margin increased to $1.296B for NGL Pipelines & Services and $278M for Natural Gas Pipelines & Services. Crude Oil Pipelines & Services was $415M and Petrochemical & Refined Products Services was $353M; both were below Q3 2021.
- For nine months, NGL segment margin increased to $3.848B, while natural gas segment margin declined to $727M, partly reflecting weaker natural gas marketing results versus unusually strong demand during the February 2021 winter storms. Crude oil segment margin was broadly flat at $1.237B; petrochemical and refined-products margin increased to $1.178B.
- Operating cash flow was also affected by a $1.7B year-over-year working-capital headwind, including commodity-price-related changes in receivables, payables and inventories. Investing cash use rose to $4.309B, principally due to Navitas; financing cash use was $3.715B.
Outlook, risks and unusual items
- Outlook and investment: No specific earnings guidance is provided. Management expected 2022 capital investment, excluding business combinations and net of noncontrolling contributions, of about $2.0B: $1.6B growth capital and $350M sustaining capital. Approximately $5.5B of growth projects were scheduled through 2025. The forecast may change with economic conditions, project decisions, supply constraints and costs.
- Projects and acquisition: Navitas Midstream was acquired for approximately $3.2B in February 2022, adding about 1,750 miles of pipelines and more than 1.0 Bcf/d of processing capacity. Its contribution to consolidated revenue and net income was not material during the periods reported. The purchase-price allocation remained preliminary.
- Key risks: Management cited inflation and cost pass-through limits, supply-chain and labor constraints, construction delays or cost overruns, maintenance needs, commodity-price exposure, demand and customer-credit risks, and cybersecurity threats. Commodity and interest-rate derivatives are used to manage exposures; no interest-rate derivatives were outstanding at September 30.
- Contingencies: No litigation contingency accrual was recorded at September 30. The company is pursuing claims against the contractor on its PDH 1 project; trial closing arguments concluded in July 2022. Several environmental notices or alleged violations were disclosed, and the company did not expect related expenditures to be material.
- Other items: The filing notes higher inflation, utility and compensation costs, and a decline in equity earnings from unconsolidated affiliates. The Q3 2022 results are not necessarily indicative of full-year results. The proposed SPOT offshore crude oil terminal remained subject to governmental approval; management’s anticipated approval timing was not assured.
Important facts for investors to verify
- Whether operating cash flow and working capital normalize, and whether DCF coverage remains adequate for distributions and planned investment.
- Near-term refinancing and liquidity, including $1.405B of commercial paper shown as due in the remainder of 2022 and other scheduled maturities.
- Execution, cost and timing of the growth-capital program, including the stated 2022 investment forecast and projects scheduled through 2025.
- How much earnings growth comes from durable fee-based services versus commodity-sensitive marketing, and the effect of margin changes across segments.
- Developments in the PDH 1 litigation, environmental matters, and approval status of SPOT.
- Distribution policy and coverage: the declared $0.475 per-unit quarterly distribution is subject to financial-condition review and Board approval.