By: John Persinos
Enterprise Products Partners LP (NYSE: EPD), the largest publicly traded master limited partnership (MLP) in the US, operates a diversified business portfolio that encompasses natural gas pipelines, offshore production platforms, tank barges, and oil pipelines.
In May, Enterprise reported first-quarter 2012 earnings of $656 million and earnings per share (EPS) of 73 cents, compared to earnings of $435 million and EPS of 49 cents for the first quarter of 2011.
Roughly 70 percent of Enterprise Products Partners’ revenue comes from pipelines and other assets that generate fees regardless of whether they operate at full capacity. These fee-based businesses limit vulnerability to commodity price fluctuations and economic downturns.
In 2011, the master limited partnership generated record distributable cash flow of $3.7 billion, sufficient to cover the company’s full-year 2010 distribution of more than $2.4 per unit by about 1.4 times.
Despite its conservative, fee-based business model, Enterprise Products Partners still boasts compelling growth prospects. Management is pumping $6.5 billion into new projects designed for organic growth, such as the construction of new pipelines and processing facilities, which are scheduled for completion by 2014.
Facilitating this long-term growth strategy is Enterprise Products Partners’ low cost of capital. Although it boosted distribution in all four quarters of 2011, the MLP’s robust cash coverage means it retained about $1.7 billion in discounted cash flow.
Roughly half the MLP’s gross operating margin stems from pipelines and services related to natural gas liquids (NGL) such as propane, ethane and butane. This business segment includes 25 natural gas processing plants, 21 NGL fractionators, NGL pipelines and storage tanks, and NGL shipping terminals on the Gulf Coast. This segment is the company’s most vital source of cash flow—and its greatest engine of potential growth.
One of the company’s key organic expansion projects involves the construction of NGL infrastructure in the Eagle Ford Shale, including 300 miles of natural gas pipelines, a processing plant with a capacity of 600 million cubic feet of natural gas per day, two major NGL pipelines, a new crude oil terminal in Houston and a fractionation facility in Mont Belvieu, Texas, a key hub for NGLs.
Producers have fiercely contested for prime acreage in the coveted Eagle Ford shale, but Enterprise Products Partners has succeeded in becoming the region’s dominant provider of midstream infrastructure. I remain bullish on Enterprise Products Partners as a top MLP Investment because the MLP’s far-sighted management team has signed long-term contracts with the region’s key producers, assuring the profitability of its midstream assets even before construction begins.