EPD Q1 2011 results- thank heaven for NGLs!

Enterprise Products (EPD) reported Q1 2011 results on May 10. 2011. All in all I can’t say or do much except stand up and extend EPD a hearty golf clap. Results were impressive to say the least. I’ll let them do the talking. The full press release is here.

“Enterprise had a record first quarter to begin 2011,” stated Michael A. Creel, president and CEO of Enterprise. “Our 50,000-mile system of natural gas, NGL, refined products, crude oil and petrochemical pipelines continues to operate at record or near record volumes. We are continuing to benefit from production growth in the shale regions as well as increased demand for NGLs by the U.S. petrochemical industry and international markets. With few exceptions, the partnership’s diversified mix of businesses had another strong quarter.”

“Our commercial and engineering teams are doing an exceptional job in expanding our existing footprint of assets to develop new organic infrastructure projects to support our energy producing customers in developing shale plays and our energy consuming customers in expanding their facilities to take advantage of domestically produced hydrocarbons. Rig counts have increased in shale plays with reserves of NGL-rich natural gas and crude oil, many of which are adjacent to our integrated system. U.S. petrochemical companies, especially ethylene producers, continue to enjoy a global feedstock cost advantage because of domestically produced supplies of ethane and propane, which are displacing more costly crude oil derivatives. Recently, four petrochemical companies have announced plans or studies to build new ethylene production facilities on the U.S. Gulf Coast to take advantage of the expected growth in U.S. ethane and propane supplies from the shale plays. This is a great story for the United States both from an economic and job creation standpoint as well as reducing our country’s reliance on imported energy,” said Creel.

Basically, business is doing great pretty much across the board but their NGL business in particular is doing even better. If you look at the breakout of their businesses, the NGL segment is now the biggest by far. EPD was very prescient about NGLs and began investments in this business about 5 years ago. Now they are reaping the rewards. See table below.

The NGL business still has plenty of room to grow. One of the NGLs, ethane, is used by chemical companies to make ethylene a key product for making plastics, polymers, paints, etc… Recently, several chemical companies announced plans for new ethane cracker plants in the US. DOW chemical, Lyondell Bassell, and Chevron, 3 of the top ethelyne producers in the US, all announced plans for new crackers. Besides continuing to grow the NGL business EPD is starting to focus more investment on crude oil projects particularly in the oil rich Eagle Ford shale. Hopefully these investment will turn out to be as successful as the NGL investments have been.

On the shareholder front, for the quarter EPD also increased their distribution to $0.5975, an increase of 5.3% over Q1 2010. The increase is their 27th consecutive quarterly increase, almost 7 years. And it’s their 36th increase since going public in 1998. They have never cut their distribution. Cash flow for the quarter covered the distribution by 1.4 times. Plenty of buffer for further increases or for reinvesting in the business without having to raise equity or issue debt. Lastly in the quarter they closed on the deal to acquire DEP. The acquisition will close in Q3 2011 and will be immediately accretive to distributable cash flow.

In summary, EPD continues to shine. The NGL investments are paying off handsomely and will continue to do so. New investments are being funneled into organic growth projects to drive future growth for shareholders. It is hard to find something not to like these days at EPD. And to make things even more attractive the share price is off near 10% since the start of May. I have a big position in EPD so I’m waiting for a further pull back but for new investors this could be a good entry point. I would average into a position in thirds to take advantage of any further selloff.

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