Enterprise Products Partners L.P. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results. Enterprise is a diversified U.S. midstream partnership operating pipelines, processing and fractionation facilities, storage, terminals and marine transportation assets.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $27.03 billion | $47.95 billion |
| Operating income | $3.54 billion | $3.78 billion |
| Net income attributable to limited partners | $2.52 billion | $2.79 billion |
| Basic / diluted earnings per unit | $1.28 / $1.26 | $1.51 / $1.47 |
| Operating cash flow | $4.00 billion | $4.16 billion |
| Distributable cash flow (non-GAAP) | $5.61 billion | $4.08 billion |
| Distribution coverage ratio (non-GAAP) | 1.85x | 1.51x |
Revenue fell about 44%, primarily because lower oil, natural gas and NGL prices reduced marketing sales and corresponding cost of sales; the decline in revenue therefore does not by itself indicate a comparable decline in underlying margins. Operating income declined about 6% and limited-partner net income about 10%. Segment gross operating margin, a non-GAAP measure, increased to $5.33 billion from $5.29 billion.
Fourth-quarter 2015 revenue was $6.16 billion, operating income $934.5 million, net income $693.5 million and basic/diluted earnings per unit $0.34/$0.34. Fourth-quarter 2014 figures were $10.19 billion, $921.0 million, $681.1 million and $0.35/$0.34, respectively.
Cash flow from operations decreased approximately 4%. The reported increase in distributable cash flow and coverage included $1.61 billion of cash proceeds from asset sales and insurance recoveries, principally the Offshore Business sale; distributable cash flow is non-GAAP and should not be treated as operating cash flow. The partnership paid distributions totaling $1.53 per unit for 2015.
At year-end, total debt principal was $22.74 billion, including $1.11 billion of commercial paper and $1.47 billion of junior subordinated notes. Cash was $19 million; available revolving-credit capacity was $4.38 billion, for reported liquidity of $4.4 billion. Total assets were $48.95 billion and total liabilities $28.45 billion. Interest expense rose to $961.8 million from $921.0 million.
Material changes and significant developments
- Acquired the remaining Oiltanking interests in February 2015, completing an approximately $6.02 billion acquisition, including 36.8 million common units issued in the second step.
- Acquired EFS Midstream for approximately $2.1 billion, with long-term fixed-fee agreements and a $1.0 billion final installment due by July 2016. The acquired business contributed $117.8 million of revenue and $59.9 million of net income in the second half of 2015.
- Sold the Offshore Business in July for approximately $1.53 billion cash. The sale produced a $12.3 million loss and accompanied a $54.8 million impairment charge.
- Crude oil pipeline throughput rose to 1.474 million barrels per day from 1.278 million; NGL pipeline throughput rose to 2.700 million from 2.634 million. Natural gas pipeline throughput declined to 12,321 BBtu/day from 12,476.
- Completed the final expansion phase of the Houston Ship Channel LPG export terminal and the Aegis ethane pipeline segment. Aegis customer commitments exceed 360,000 barrels per day, ramping over four years.
Outlook, risks and contingencies
- Management planned to recommend 2016 distributions totaling $1.61 per unit, a 5.2% increase from 2015, subject to Board approval. Planned quarterly rates were $0.395, $0.400, $0.405 and $0.410.
- Management forecast 2016 capital spending of $3.8–$4.1 billion, including the EFS final installment and $275 million of sustaining capital. It expected to complete about $2.7 billion of major projects during 2016. The PDH project schedule was revised: construction completion was expected in first-quarter 2017 and commercial operations in second-quarter 2017.
- Management expected low commodity prices and reduced producer drilling to affect volumes in certain regions, while emphasizing that most major projects were supported by long-term fee-based commitments. It also cited opportunities from LPG, ethane and crude oil exports and Gulf Coast petrochemical demand. These expectations are forward-looking and not assured.
- Key risks include commodity-price and volume exposure, producer and counterparty credit deterioration, substantial debt and refinancing needs, access to capital, project cost and timing overruns, pipeline safety and environmental obligations, severe weather, and regulated-rate challenges. Management estimated 2016 pipeline-integrity costs of approximately $122 million.
- In the ETP litigation, a court judgment totaled $535.8 million plus post-judgment interest. Enterprise was appealing and recorded no provision because management considered payment not probable. FTC and Texas Attorney General investigations relating to the Oiltanking acquisition remained unresolved; the filing states the outcome could not be predicted.
- The $245.1 million Level 3 Liquidity Option Agreement liability was subject to significant unobservable valuation assumptions. The filing also reports that EFS Midstream was excluded from management’s year-end internal-control assessment while integration work continued; the independent auditor’s opinion on controls was unqualified for the assessed scope.
Important facts for investors to verify
- Whether operating cash flow and recurring fee-based earnings support the proposed distribution growth, excluding asset-sale proceeds and other nonrecurring items from distributable cash flow.
- Execution, cost and timing of 2016–2017 projects, including the ethane export facility, Delaware Basin plants and the delayed Midland-to-Sealy pipeline.
- Debt levels, the use of commercial paper and revolving facilities, scheduled maturities, and the funding of the EFS installment and capital program.
- Updates on the ETP appeal, the FTC and Texas investigations, and any resulting financial exposure or required disclosures.
- Actual producer volumes, customer credit performance, pipeline minimum-volume shortfalls and deferred shipper make-up-right revenue.