Enterprise Products Partners L.P. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 9, 2024. Dollar amounts are in U.S. dollars. Enterprise is a North American midstream energy partnership with four reporting segments: NGL, crude oil, natural gas, and petrochemical and refined products services.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $14.760 billion | $12.444 billion |
| Operating income | $1.822 billion | $1.734 billion |
| Net income | $1.483 billion | $1.422 billion |
| Net income attributable to common unitholders | $1.456 billion | $1.390 billion |
| Basic and diluted earnings per common unit | $0.66 | $0.63 |
| Operating cash flow | $2.111 billion | $1.583 billion |
| Capital expenditures | $1.047 billion | $653 million |
| Total gross operating margin, non-GAAP | $2.490 billion | $2.335 billion |
| DCF distribution coverage | 1.7x | 1.8x |
Revenue rose 18.6%, primarily from higher marketing volumes; management noted that higher product sales and purchase costs can move together and do not necessarily increase margin or distributable cash. Gross operating margin increased about 6.6%. Segment gross operating margin improved in NGL Pipelines & Services ($1.340 billion versus $1.212 billion), Crude Oil Pipelines & Services ($411 million versus $397 million), and Petrochemical & Refined Products Services ($444 million versus $419 million); Natural Gas Pipelines & Services was slightly lower ($312 million versus $314 million).
Operating cash flow increased $528 million, reflecting a $403 million year-over-year improvement in changes in operating accounts and higher earnings. Cash used in investing activities was $1.038 billion, mainly capital expenditures; cash used in financing activities was $1.009 billion. DCF was $1.915 billion, down from $1.938 billion, and cash distributions paid or attributable to the period were $1.129 billion. The partnership retained $786 million of DCF.
Debt, liquidity, and distributions
- At March 31, 2024, consolidated debt principal was $29.721 billion; reported long-term debt was $28.285 billion, in addition to $1.149 billion of current maturities. The average debt maturity was approximately 18.8 years.
- Debt principal increased from $29.021 billion at year-end 2023. In January, EPO issued $2.0 billion of senior notes at fixed rates of 4.60% due 2027 and 4.85% due 2034; proceeds supported general purposes, growth investments, and debt repayment. A $1.5 billion 364-day revolving facility replaced the prior agreement; no borrowings were outstanding under it at quarter-end.
- Management reported $4.5 billion of consolidated liquidity: $4.2 billion of available revolving-credit capacity and $283 million of unrestricted cash. EPO was in compliance with debt financial covenants.
- On April 5, the Board declared a quarterly distribution of $0.515 per common unit, or $2.06 annualized, payable May 14, 2024. Future distributions and increases remain subject to management review and Board approval.
Material changes, outlook, and risks
- Marketing revenue increased substantially, including higher crude oil and petrochemical/refined-products sales; natural gas sales revenue declined, primarily due to lower average prices. Midstream revenue increased $176 million year over year.
- Capital expenditures increased to $1.047 billion from $653 million. Management expects 2024 capital investments, net of noncontrolling-interest contributions, of approximately $3.8 billion to $4.3 billion, including $3.25 billion to $3.75 billion of growth capital and $550 million of sustaining capital.
- Approximately $6.9 billion of growth projects were scheduled for completion by the first half of 2026. Mentone 3 and Leonidas entered service, as did the first phase of the Texas Western Products System. In April, the partnership announced Mentone West 2, expected to begin service in the first half of 2026.
- In April, the partnership received a deepwater port license for the proposed SPOT crude oil export terminal. Commercialization efforts continue; the project remains subject to a final investment decision, and its capital costs are excluded from the stated 2024 investment forecast.
- PDH 1 maintenance was expected to continue into Q2 2024. PDH 2 was expected to have downtime beginning in June to address startup issues, with operations anticipated to resume in Q3. These plans create potential operating and execution risks.
- Commodity prices and volumes affect marketing revenue and costs; the partnership uses derivatives and fee-based contracts to manage exposures. Management cautioned that prolonged high inflation could adversely affect results if costs rise faster than revenues. Other disclosed risks include customer credit and contract performance, adverse economic conditions, regulation, weather, and project cost or schedule changes.
- The filing reports no litigation contingency accrual at March 31. It identifies several environmental and regulatory matters for which management does not expect expenditures to be material. Related-party arrangements remain significant: EPCO and affiliates owned 32.3% of common units and received $350 million in distributions during the quarter; the filing cautions that related-party terms may not be as favorable as third-party terms.
Important facts for investors to verify
- Whether operating cash flow and DCF remain sufficient to fund elevated growth capital spending, distributions, and debt service; note that Q1 operating cash flow benefited from working-capital movements.
- Progress, costs, customer commitments, and timing for announced growth projects; confirm SPOT’s commercialization and final investment decision status.
- PDH 1 and PDH 2 maintenance and startup recovery, and the resulting effects on Petrochemical & Refined Products segment performance.
- Debt maturities and refinancing conditions, borrowing availability, and compliance with covenants as investment spending continues.
- Whether distribution coverage and the $0.515 quarterly distribution remain supported by future DCF and Board approval.
- Developments in environmental proceedings, commodity-market exposures, and related-party transactions.