Enterprise Products Partners L.P. — Q1 2014 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2014; financial statements are unaudited. Enterprise is a North American midstream energy partnership operating pipelines, processing, storage, terminals and related services across five segments. Figures are in U.S. dollars; financial amounts are in millions unless stated otherwise.
Financial results and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Revenue | $12,909.9 | $11,383.1; up 13.4% |
| Operating income | $1,032.7 | $957.7; up 7.8% |
| Net income | $806.7 | $755.3; up 6.8% |
| Net income attributable to limited partners | $798.8 | $753.5 |
| Basic / diluted earnings per unit | $0.87 / $0.85 | $0.85 / $0.83 |
| Segment gross operating margin (non-GAAP) | $1,329.8 | $1,231.1; up 8.0% |
| Operating cash flow | $1,404.1 | $999.9 |
| Capital spending | $980.1 | $914.3 |
| Cash distributions to limited partners | $639.2 | $577.6 |
Revenue and costs rose substantially with higher commodity prices and sales volumes; product marketing includes significant pass-through costs. Operating cash flow benefited from earnings and a $342.5 million net inflow from changes in operating accounts. Capital spending comprised $695.4 million for property, plant and equipment net of construction contributions and $284.7 million for unconsolidated affiliates.
At March 31, cash and cash equivalents were $988.4 million (versus $56.9 million at year-end); restricted cash was $43.3 million. Current assets of $7,333.2 million were below current liabilities of $7,622.0 million. Debt principal was $18,382.7 million, including $900 million of current maturities; long-term debt carrying value was $17,467.8 million. The partnership reported $5.49 billion of consolidated liquidity, including approximately $4.5 billion of available revolving capacity, but that figure included a $1.0 billion 364-day facility terminated effective May 1, 2014.
Material changes versus Q1 2013
- Gross operating margin increased to $1.33 billion, led by NGL Pipelines & Services, which rose to $780.0 million from $592.5 million. The Onshore Natural Gas segment also improved, to $220.4 million from $190.8 million.
- Onshore Crude Oil gross operating margin fell to $159.7 million from $236.4 million, principally because narrower regional crude price spreads reduced marketing margins, despite higher pipeline volumes.
- Petrochemical & Refined Products gross operating margin decreased to $130.4 million from $170.9 million, primarily reflecting extended unscheduled maintenance at the octane enhancement facility and lower refined-products results.
- Interest expense increased $25.0 million to $220.9 million, reflecting higher average debt balances and lower capitalized interest.
- Net gains from asset sales and insurance recoveries were $89.6 million versus $63.9 million. Q1 2014 included $95.0 million of final West Storage insurance proceeds; Q1 2013 included a $52.5 million gain on the Seminole Pipeline asset sale.
Outlook, risks and unusual items
- Management forecast 2014 capital spending of $4.0–$4.4 billion, including $350 million of sustaining capital. It expected $2.5 billion of growth projects to enter service during the remainder of 2014 and said it expected sufficient liquidity, operating cash flow and capital-markets access to fund needs. The filing cautions that project spending and timing may change.
- Growth developments included ATEX ethane pipeline operations beginning in January 2014 and Front Range NGL pipeline operations beginning in February. The partnership also announced a planned Gulf Coast ethane export facility, targeted for service in Q3 2016, and further LPG export-terminal expansion targeted by the end of 2015.
- The declared Q1 2014 distribution was $0.71 per common unit, compared with $0.67 for Q1 2013. The filing does not provide a full-year distribution forecast.
- In the ETP litigation, a jury awarded $319.4 million in actual damages in March. ETP subsequently sought approximately $914.7 million plus prejudgment interest, including claimed disgorgement; no judgment had been entered by the filing date. Enterprise disputed the verdict, intended to oppose the requested judgment and recorded no provision because management did not consider payment probable.
- Enterprise expected to forego windstorm coverage for its Gulf of Mexico offshore assets during the 2014 hurricane season because the coverage was uneconomic. Certain producers continued to provide specified physical-damage coverage for the Independence Hub and Marco Polo platforms.
- Commodity prices, regional price spreads, throughput, maintenance, project execution, interest rates and access to financing affect results. Management noted that non-designated commodity derivatives can create unpredictable non-cash mark-to-market earnings variability. It also cautioned that first-quarter results are not necessarily indicative of full-year results.
- Q1 included $8.8 million of non-cash asset impairment charges, primarily from asset abandonment. Management reported compliance with debt financial covenants and effective disclosure controls.
Most important facts for investors to verify
- Developments and potential financial exposure in the ETP lawsuit, including any judgment, appeal or revised loss assessment.
- Liquidity and refinancing capacity after termination of the $1.0 billion 364-day credit agreement, and the funding mix for the $4.0–$4.4 billion 2014 capital program.
- Whether new pipelines and planned export-terminal projects meet stated schedules, costs and contracted-volume expectations.
- Underlying segment margin trends, especially the durability of NGL growth and recovery or further weakness in crude-oil marketing and octane enhancement.
- The effect of final West Storage insurance proceeds and other unusual gains on reported results, and the partnership’s offshore windstorm risk during hurricane season.