Enterprise Products Partners L.P. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report. Enterprise is a publicly traded midstream energy partnership operating across natural gas, NGLs, crude oil, petrochemicals and refined products. Its common units trade as EPD. Deloitte issued an unqualified opinion on the consolidated financial statements and internal controls.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $27.20 billion | $32.79 billion |
| Operating income | $5.04 billion | $6.08 billion |
| Net income | $3.89 billion | $4.69 billion |
| Net income attributable to common unitholders | $3.77 billion | $4.59 billion |
| Diluted earnings per common unit | $1.71 | $2.09 |
| Cash from operating activities | $5.89 billion | $6.52 billion |
| Capital expenditures | $3.29 billion | $4.53 billion |
| Non-GAAP distributable cash flow (DCF) | $6.41 billion | $6.62 billion |
| DCF distribution coverage | 1.63x | 1.70x |
Revenue fell about 17% year over year, largely because lower commodity prices and sales volumes reduced marketing revenues. Operating income declined about 17%; reported results also included $890.6 million of non-cash impairment charges, versus $132.7 million in 2019. Cost of sales declined substantially alongside lower commodity prices.
Non-GAAP total gross operating margin was $8.10 billion, down from $8.27 billion. By segment, NGL Pipelines & Services generated $4.18 billion (up from $4.07 billion); Crude Oil Pipelines & Services $2.00 billion (down from $2.09 billion); Natural Gas Pipelines & Services $926.6 million (down from $1.06 billion); and Petrochemical & Refined Products Services $1.08 billion (up from $1.07 billion).
At year-end, cash and cash equivalents were $1.06 billion; reported consolidated liquidity was $6.06 billion, including $5.0 billion of available revolving-credit capacity. Principal debt was $30.15 billion, including $27.50 billion of senior debt and $2.65 billion of junior subordinated debt. Scheduled 2021 principal maturities were $1.325 billion. EPO’s senior unsecured debt ratings were investment grade: BBB+ (S&P), Baa1 (Moody’s) and BBB+ (Fitch).
Material changes and notable items
- Operating cash flow decreased $629 million year over year, with working-capital changes in marketing activities and lower earnings and affiliate distributions among the cited drivers.
- Segment gross operating margin increased in NGL and Petrochemical & Refined Products services, but decreased in Crude Oil and Natural Gas services. NGL fractionation and LPG export activity benefited from added capacity and higher volumes; crude oil and natural gas activity faced lower volumes and weaker market conditions.
- The partnership recorded $296.3 million of goodwill impairment, eliminating all goodwill in Natural Gas Pipelines & Services; $256.7 million of impairment for marine transportation; and $125.7 million for certain South Texas natural gas gathering and processing assets. It also recorded $42.2 million related to cancellation of the Midland-to-ECHO 4 project.
- Growth capital investment fell to $2.99 billion from $4.21 billion. The Midland-to-ECHO 3 expansion entered service in stages; Frac X and Frac XI and the ethylene export terminal’s refrigerated storage entered service during 2020.
- The fourth-quarter common-unit distribution was declared at $0.45 per unit, or $1.80 annualized, and paid in February 2021. Management said future distribution increases would be assessed quarterly. DCF is a non-GAAP measure and is not equivalent to operating cash flow or free cash flow.
Outlook, risks and contingencies
- Management described the outlook as uncertain because of COVID-19, changing hydrocarbon demand, production levels and prices. It expected a gradual demand recovery, while noting that the pace depended on pandemic developments, vaccines and broader economic recovery.
- Management forecast 2021 capital investments, net of joint-venture contributions, of about $2.1 billion: $1.6 billion for growth and $440 million for sustaining projects. Sanctioned growth capital was forecast at about $800 million for 2022 and $400 million for 2023.
- SPOT, a proposed offshore crude oil export terminal, remained subject to government approvals; approval was anticipated as early as the third quarter of 2021, with no assurance of approval or timing. PDH 2 was scheduled to begin service in the second quarter of 2023; the Gillis Lateral and related Acadian expansion were expected in the fourth quarter of 2021.
- Management warned that prolonged demand weakness could lead to additional impairments. Other key exposures include commodity-price and volume volatility, customer credit risk, significant debt, construction and maintenance costs, competition, pipeline and environmental regulation, severe weather, climate-related regulation, and cyber incidents.
- The partnership had $6.1 million of accrued litigation contingencies at year-end and stated that pending litigation was not expected to materially affect the consolidated financial statements. It is pursuing litigation against the former PDH 1 contractor. An EPA notice involving Baton Rouge facilities could result in sanctions above $0.3 million, which the company did not expect to be material.
- Series A cumulative convertible preferred units carry a 7.25% annual distribution rate and rank senior to common units for distributions and liquidation. Preferred units may convert under specified conditions, creating potential dilution; the partnership may also make distributions partly in additional preferred units.
Important facts for investors to verify
- Review the impairment assumptions and sensitivity of the natural gas, marine transportation and South Texas asset valuations to future volumes, margins and discount rates.
- Assess debt maturities, refinancing plans, revolver availability and leverage alongside planned capital spending and the partnership’s distribution policy.
- Separate commodity-driven marketing revenue changes from fee-based service performance; confirm segment trends and volume recovery in subsequent filings.
- Evaluate the preferred units’ cumulative distribution, payment-in-kind and conversion terms, and their implications for common-unit cash availability and dilution.
- Track the status, costs and customer commitments for SPOT and other major projects, as well as COVID-19, regulatory, environmental and customer-credit developments.