Enterprise Products Partners L.P. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Enterprise is a North American midstream energy partnership operating across NGL, crude oil, natural gas, petrochemical and refined-products businesses.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $12.444 billion | $13.008 billion | Down $564 million |
| Operating income | $1.734 billion | $1.666 billion | Up $68 million |
| Net income | $1.422 billion | $1.331 billion | Up $91 million |
| Net income attributable to common unitholders | $1.390 billion | $1.296 billion | Up $94 million |
| Basic and diluted earnings per unit | $0.63 | $0.59 | Up $0.04 |
| Operating margin | 13.9% | 12.8% | Improved |
| Operating cash flow | $1.583 billion | $2.145 billion | Down $562 million |
| Capital expenditures | $653 million | $349 million | Up $304 million |
- Non-GAAP total gross operating margin increased to $2.335 billion from $2.258 billion. By segment, Natural Gas Pipelines & Services rose to $314 million from $220 million; NGL Pipelines & Services declined to $1.212 billion from $1.225 billion; Crude Oil Pipelines & Services declined to $397 million from $415 million; and Petrochemical & Refined Products Services rose to $419 million from $404 million.
- Revenue fell primarily because lower average commodity prices reduced marketing revenues, especially for NGLs and natural gas. Lower sales prices also reduced related purchase costs. Operating cash flow fell largely due to working-capital movements in marketing activities.
- At March 31, cash and cash equivalents were $76 million and restricted cash was $200 million. Total assets were $67.325 billion; current liabilities were $10.410 billion.
- Consolidated debt principal was $28.9 billion, including $1.149 billion of current maturities; long-term debt was $27.439 billion. Interest expense was $314 million, versus $319 million a year earlier. The Partnership reported compliance with debt financial covenants.
- Management reported $4.0 billion of consolidated liquidity: $3.9 billion of available revolver capacity net of commercial paper borrowings, plus $76 million unrestricted cash. The filing states this is sufficient, together with operating cash flow and capital-market access, for reasonably foreseeable needs.
- Non-GAAP distributable cash flow (DCF) was $1.938 billion, versus $1.837 billion; distribution coverage was 1.8x in both periods. DCF retained was $863 million. These measures are management-defined and are not GAAP measures.
Material changes and developments
- In January 2023, EPO issued $1.75 billion of fixed-rate senior notes: $750 million due 2026 at 5.05% and $1.0 billion due 2033 at 5.35%. Proceeds supported general purposes, growth investment and debt repayment, including repayment of $1.25 billion of notes due in March 2023.
- In March, EPO replaced its revolving credit agreements with a $1.5 billion 364-day facility maturing in March 2024 and a $2.7 billion multi-year facility maturing in March 2028. Neither had borrowings outstanding at quarter-end.
- Growth and sustaining capital expenditures rose to $542 million and $111 million, respectively. The filing identifies approximately $6.1 billion of growth projects scheduled for completion by the end of 2025.
- Crude oil pipeline results were pressured by the expiration of certain minimum-volume commitments. Natural gas pipeline margin improved with higher transportation demand and the Midland Basin Gathering System; NGL pipeline, storage and terminal margin benefited from increased volumes and export activity.
Outlook, risks and unusual items
- Management forecast 2023 capital investments, net of noncontrolling-interest contributions, of approximately $2.8–$3.2 billion, including $2.4–$2.8 billion of growth investment and $400 million of sustaining capital. Project timing and spending may change with economic conditions, inflation, supply constraints, funding access or management decisions.
- The proposed SPOT deep-water crude oil terminal is excluded from that forecast and remains subject to permitting and related requirements; the filing gives no assurance when or whether it will be authorized to proceed.
- Commodity prices and volumes, customer performance, demand, competition, weather, regulation and inflation may affect results. Management said inflation had not materially affected historical results presented, but prolonged cost increases exceeding revenue adjustments could be adverse.
- Commodity derivatives not designated as hedges generated a $200 million net gain in Q1 2023, consisting of $202 million realized gains and $2 million unrealized losses. Commodity and derivative valuations remain sensitive to market movements; hedging does not eliminate all exposure.
- Management did not expect the transition of certain debt benchmarks from LIBOR to SOFR to have a material financial impact. The Partnership had no interest-rate hedging instruments outstanding as of the filing date.
- No litigation contingencies were accrued at quarter-end. The filing describes several environmental and regulatory matters and states that related expenditures are not expected to be material. It also notes that insurance may not fully cover future legal losses.
- The Board declared a $0.49 per common unit quarterly distribution for Q1 2023, payable May 12, 2023; this equals $1.96 annualized. Future distributions and increases remain subject to management review and Board approval.
Important facts for investors to verify
- Whether the 1.8x DCF coverage and cash retention continue as growth spending and distributions proceed; review the partnership’s DCF definition and reconciliation.
- How much of operating cash flow and reported margin reflects recurring fee-based operations versus working-capital swings, marketing activity and derivative gains.
- Progress, spending and expected returns on the approximately $6.1 billion project slate, including 2023 capital-investment guidance and permitting for SPOT.
- Debt refinancing needs, variable-rate exposure, access to revolving facilities and the Partnership’s guarantees of EPO debt.
- Effects of expiring minimum-volume commitments, commodity-price movements, inflation and regulatory or environmental matters on segment results and cash generation.