Enterprise Products Partners L.P. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with 2020. EPD is a publicly traded master limited partnership providing midstream energy services through four segments: NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services.
Financial performance
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $40.81 billion | $27.20 billion | +50.0% |
| Operating income | $6.10 billion | $5.04 billion | +21.2% |
| Net income attributable to common unitholders | $4.63 billion | $3.77 billion | +22.8% |
| Basic earnings per common unit | $2.11 | $1.71 | +23.4% |
| Net cash from operating activities | $8.51 billion | $5.89 billion | +44.5% |
| Distributable cash flow (non-GAAP) | $6.61 billion | $6.41 billion | +3.1% |
| Free cash flow (non-GAAP) | $6.30 billion | $2.67 billion | Increased |
| Capital expenditures | $2.22 billion | $3.29 billion | −32.4% |
Operating margin was approximately 15.0% of revenue, versus 18.5% in 2020; net margin attributable to common unitholders was approximately 11.4%, versus 13.9%. These ratios were affected by the large share of commodity marketing sales and related pass-through purchase costs in revenue. Management’s non-GAAP total gross operating margin increased 5.7%, to $8.56 billion from $8.10 billion.
Revenue growth was chiefly price-driven: marketing revenue increased $12.99 billion, primarily reflecting higher commodity prices, partly offset by lower volumes in several product categories. Higher sales and purchase prices can expand reported revenue without a comparable increase in margin.
Segment and operating changes
| Segment gross operating margin | 2021 | 2020 | Change |
|---|---|---|---|
| NGL Pipelines & Services | $4.32 billion | $4.18 billion | +3.2% |
| Crude Oil Pipelines & Services | $1.68 billion | $2.00 billion | −15.9% |
| Natural Gas Pipelines & Services | $1.16 billion | $0.93 billion | +24.7% |
| Petrochemical & Refined Products Services | $1.36 billion | $1.08 billion | +25.5% |
Crude Oil segment margin declined mainly on weaker crude marketing margins and lower volumes in certain pipelines and terminals. Natural Gas segment results benefited from unusually strong natural gas marketing margins during February’s winter storms. Petrochemical results improved substantially, led by propylene production and related activities. NGL fractionation gains, including a full-year contribution from Fracs X and XI, were partly offset by lower pipeline and export-terminal volumes.
Operating income rose despite impairment charges of $232.6 million in 2021. These were lower than 2020’s $890.6 million, which included a $296.3 million goodwill impairment and significant marine transportation and South Texas asset impairments. In 2021, EPD recorded a $114.2 million marine transportation impairment and a $44.3 million impairment related to the sale of a gathering system and treating facility.
Cash, distributions, debt and liquidity
- Operating cash flow rose to $8.51 billion. Management attributed the increase partly to a $1.57 billion year-over-year improvement from working capital employed in marketing activities and timing of cash receipts and payments.
- At year-end, unrestricted cash was $2.82 billion; available borrowing capacity was $4.5 billion; reported consolidated liquidity totaled $7.32 billion. EPO had no commercial paper or revolving-credit borrowings outstanding at December 31, 2021.
- Debt principal was $29.82 billion, including $27.18 billion of senior debt and $2.65 billion of junior subordinated debt. Average debt maturity was approximately 20.7 years; $1.40 billion of principal was scheduled for 2022. Interest expense was $1.28 billion, broadly flat year over year.
- Credit ratings on EPO’s long-term senior unsecured debt were investment grade: BBB+ from S&P, Baa1 from Moody’s and BBB+ from Fitch, as of the filing’s stated date.
- 2021 DCF covered common-unit distributions 1.66x, up from 1.63x in 2020. EPD retained $2.62 billion of DCF. The declared distribution for the fourth quarter was $0.465 per unit, or $1.86 annualized; management said future increases would be evaluated quarterly.
Outlook, notable events and risks
- Management forecast approximately $1.9 billion of 2022 capital investments, net of partner contributions: $1.5 billion for growth and $350 million for sustaining capital. Approximately $2.2 billion of growth projects were scheduled for completion by the end of 2023, including PDH 2, then planned for service in the second quarter of 2023.
- In February 2022, an affiliate completed the $3.25 billion cash acquisition of Navitas Midstream, funded with commercial paper and cash. Navitas adds about 1,750 miles of pipelines and more than 1.0 Bcf/d of processing capacity. This post-year-end acquisition is not reflected in 2021 results.
- EPD estimated that Hurricane Ida reduced gross operating margin by approximately $34 million in the third and fourth quarters of 2021. February winter storms caused outages and higher energy costs; storm-related power optimization and demand-response payments contributed to segment results.
- Management’s 2022 outlook cited economic recovery and demand improvement, but also uncertainty from COVID-19 variants, supply-chain disruptions, labor shortages, inflation and commodity-market changes. The filing relays EIA forecasts of higher global liquids production than consumption in 2022–2023, with potential downward pressure on crude prices; these are not company earnings guidance.
- Key exposures include hydrocarbon demand and production, competition, customer credit, leverage and refinancing, construction costs and delays, pipeline integrity and safety, severe weather, environmental and climate regulation, and commodity and interest-rate risk. The FERC’s revised liquids-pipeline rate index was set to reduce the index from PPI plus 0.78% to PPI minus 0.21% beginning March 1, 2022, subject to possible appellate review.
- Contingencies include ongoing PDH 1 contractor litigation, IRS examinations of 2019 and 2020 partnership returns, and environmental matters involving Baton Rouge facilities and the Meeker plant. Management said it did not expect the cited environmental penalties to be material; it did not quantify a clear potential recovery or exposure for the PDH litigation.
Important facts for investors to verify
- How much of the revenue and operating-cash-flow growth reflects sustainable operating performance versus commodity prices, working-capital timing and February storm-related items.
- Whether segment throughput, marketing margins and contractual fee revenues recover or weaken, particularly in crude oil and NGL pipelines and terminals.
- Post-acquisition leverage, financing costs and integration results following the Navitas purchase, alongside the announced 2022 capital program and debt maturities.
- Distribution sustainability: confirm future DCF coverage, capital needs and debt service; the stated 1.66x coverage is a non-GAAP measure.
- Potential effects of the FERC rate-index change, pipeline-safety and environmental requirements, and the outstanding litigation and tax examinations.
- Consider the partnership structure and tax treatment: unitholders may owe tax on allocated income without matching cash distributions, and EPCO affiliates held approximately 32.3% of common units at year-end.