Enterprise Products Partners L.P. (NYSE:EPD) announced its financial results for the three and nine months ended September 30, 2016.

Third Quarter 2016 Highlights:

  • Enterprise increased its cash distribution with respect to the third quarter of 2016 by 5.2 percent to $0.405 per unit compared to the distribution paid with respect to the third quarter of 2015. The distribution will be paidNovember 7, 2016 to unitholders of record as of the close of business on October 31, 2016.
  • Enterprise reported distributable cash flow of $978 million for the third quarter of 2016, which provided 1.15 times coverage of the $0.405 per unit cash distribution and resulted in $124 million of retained distributable cash flow. For the nine months ended September 30, 2016, distributable cash flow was $3.1 billion, which provided 1.22 times coverage of the aggregate $1.20 per unit cash distribution, and Enterprise retained $551 million of distributable cash flow, which is available to reinvest in growth capital projects and reduce the need to issue additional equity.
  • Excluding cash proceeds from asset sales and insurance recoveries, distributable cash flow for the third quarter of 2016 was $962 million compared to $970 million for the third quarter of 2015.

Third Quarter Volume Highlights:

  • Capital investments were $621 million in the third quarter of 2016, and $2.6 billion for the first nine months of 2016. Included in these investments were sustaining capital expenditures of $62 million and $179 million for the third quarter and first nine months of 2016, respectively. These amounts exclude $1.0 billion that Enterprise paid in July 2016 for the second and final installment payment for the acquisition of the EFS Midstream assets.

“Enterprise reported another solid quarter in light of the challenging environment for the global energy industry,” said Jim Teague, chief executive officer of Enterprise’s general partner. “We are proud of our employees for their untiring efforts in the commercial, operational and financial performance of the partnership. For the third quarter of 2016, Enterprise generated $1 billion in distributable cash flow, increased our distribution to partners by 5.2 percent and retained $124 million of distributable cash flow to reinvest in the business. During the quarter, we transported over 5 million barrels per day through our liquids pipelines and handled over 1.2 million barrels per day at our marine terminals. Increases in gross operating margin from many of our fee-based businesses partially offset the effects of lower earnings from our commodity sensitive businesses, lower volumes on our Eagle Ford crude oil pipelines, weaker ethane recoveries industry-wide, downtime and repairs at our Pascagoula natural gas processing plant and pre-commissioning expenses for certain new assets.”

“We are optimistic that the energy industry has weathered the harshest part of this cycle and very proud of how our businesses continued to perform. While the industry may still experience bouts of commodity price weakness and volatility, we believe it has a firmer foundation going into 2017 as the gap between supply and demand has narrowed and should continue to do so. We are seeing significant ‘green shoots’ of producer activity as a result of the opportunity to hedge future sales of crude, NGLs and natural gas at economic levels. In addition to the acceleration of investment in thePermian Basin, we are seeing activity attributable to new discoveries, deployment of new technology, including in well-established areas such as the Eagle Ford and Haynesville; and changes in ownership of acreage as some producers emerge from restructuring.

“From the perspective of consumers of energy, a substantial increase in demand for natural gas and NGLs is expected from new domestic petrochemical, natural gas-fired power plants and LNG facilities under construction and scheduled to begin operations over the next one to three years. Through the end of 2017, five new ethylene facilities on the U.S. Gulf Coast are scheduled to begin operations that represent 333,000 barrels per day, or 30 percent increase in demand for ethane. In addition, certain refining and petrochemical customers are evaluating new facilities or modifications to existing facilities that will require additional midstream energy infrastructure.”

“We currently have $5.6 billion of growth capital projects under construction that will begin commercial service between now and the end of 2018, including our PDH facility, the Midland-to-Sealy crude oil pipeline and a third natural gas processing plant in the Delaware Basin. We expect these projects to support continued distribution growth for our partners,” continued Teague.

Review of Third Quarter 2016 Results:

NGL Pipelines & Services – Gross operating margin for the NGL Pipelines & Services segment increased to $704 million for the third quarter of 2016 from $696 million for the third quarter of 2015.

Enterprise’s natural gas processing and related NGL marketing business generated gross operating margin of $203 million for the third quarters of both 2016 and 2015. Gross operating margin for the third quarter of 2016 benefited from higher processing margins, including hedging activities, and a $13 million increase from the partnership’s NGL marketing activities due in part to increased liquefied petroleum gases (“LPG”) loadings for export. Offsetting these increases to gross operating margin were lower fees and volumes from fee-based processing at Enterprise’s South Texas, Rockies and Louisiana gas processing plants, and a $7 million increase in operating expenses as the result of a fire at ourPascagoula, Mississippi natural gas processing plant in June 2016. We estimate the total impact of the Pascagoula plant outage during the third quarter of 2016 in terms of higher operating expense, lost gross operating margin opportunity and sustaining capital expenditures was approximately $23 million. We currently expect the plant to resume operations inDecember 2016.

Enterprise’s natural gas processing plants reported fee-based processing volumes of 4.6 Bcf/d in the third quarter of 2016 compared to 5.0 Bcf/d for the third quarter of 2015. Equity NGL production was 116 MBPD for the third quarter of 2016 compared to 129 MBPD for the third quarter of last year. A significant portion of the decrease in the fee-based processing volumes and equity NGL production was attributable to down time at the Pascagoula plant.

Gross operating margin from the partnership’s NGL pipelines and storage business increased to $378 million for the third quarter of 2016 from $366 million for the third quarter of 2015. Total NGL transportation volumes were 2.9 million BPD for the third quarter of 2016 compared to 2.8 million BPD for the same quarter of 2015.

Enterprise’s ATEX and Aegis ethane pipelines reported a $27 million increase in gross operating margin for the third quarter of 2016 compared to the third quarter of last year on a 112 MBPD increase in transportation volumes. The third and final segment of the Aegis ethane pipeline was completed in December 2015. Gross operating margin for the third quarter of 2016 increased $9 million from a 30 MBPD increase in LPG loadings at our marine terminal on the Houston Ship Channel compared to the same quarter in 2015. Partially offsetting these increases in gross operating margin were lower transportation fees and volumes on the Mid-America and Seminole pipelines which led to a $13 million decrease in gross operating margin. Also contributing to lower gross operating margin this quarter was an aggregate 74 MBPD decrease in NGL transportation volumes from the partnership’s Dixie, South Louisiana, Rio Grande and Tri-States NGL pipelines that led to an aggregate $11 million decrease in gross operating margin.

Enterprise’s ethane export terminal, which is located on the Houston Ship Channel, began commercial service inSeptember 2016 loading an average of 20 MBPD of ethane in the third quarter. Gross operating margin for the facility in the third quarter of 2016, including commissioning expenses, was a loss of $3 million. Contract commitments for this facility increase to 50 MBPD by the end of 2016 and will increase to approximately 180 MBPD by the end of 2017.

Gross operating margin from the partnership’s NGL fractionation business was $122 million for the third quarter of 2016 compared to $126 million for the third quarter of 2015, a $4 million decrease primarily due to lower fractionation volumes. Total fractionation volumes decreased 46 MBPD to 791 MBPD for the third quarter of 2016 compared to 837 MBPD for the third quarter of 2015 primarily due to ethane rejection at regional natural gas processing facilities.

Crude Oil Pipelines & Services – Gross operating margin from the partnership’s Crude Oil Pipelines & Services segment was $254 million for the third quarter of 2016 compared to $255 million for the third quarter of 2015. Total crude oil pipeline transportation volumes were 1.4 million BPD for the third quarter of 2016 compared to 1.5 million BPD for the same quarter of 2015. Total crude oil marine terminal volumes were 520 MBPD for the third quarter of 2016 compared to 551 MBPD for the third quarter of 2015.

The EFS Midstream assets that we acquired effective July 1, 2015, had a $15 million increase in gross operating margin this quarter compared to the third quarter of last year primarily due to higher revenues and lower costs that more than offset the impact of lower volumes. Enterprise completed construction and put into service over 9 million barrels of additional storage capacity at the partnership’s ECHO, EHT and Beaumont facilities since the third quarter of 2015. These new storage tanks contributed toward a $13 million increase in gross operating margin in the third quarter of 2016 compared to the third quarter of last year for these facilities.

Enterprise’s South Texas and Eagle Ford Crude Oil Pipeline Systems reported an aggregate $28 million decrease in gross operating margin for the third quarter of 2016 compared to the third quarter of 2015 primarily due to lower volumes. Pipeline volumes on these systems, net to our interest, were 351 MBPD for the third quarter of 2016 compared to 449 MBPD for the same quarter of 2015. Gross operating margin from Enterprise’s crude oil marketing and related activities decreased $6 million this quarter compared to the third quarter of 2015.

Natural Gas Pipelines & Services – Gross operating margin from the partnership’s Natural Gas Pipelines & Services segment was $179 million for the third quarter of 2016 compared to $192 million for the third quarter of 2015. Total natural gas transportation volumes were 12.1 TBtu/d for the third quarter of 2016 compared to 12.4 TBtu/d for the same quarter of last year. The Texas Intrastate System reported a $16 million decrease in gross operating margin primarily due to lower revenues attributable to reduced producer drilling activity in the Eagle Ford and Barnett Shale. Natural gas pipeline volumes for this system were 4.9 TBtu/d for the third quarter of 2016 compared to 5.0 TBtu/d for the third quarter of 2015.

Petrochemical & Refined Products Services – Gross operating margin for the Petrochemical & Refined Products Services segment was $172 million for the third quarter of 2016 compared to $192 million for the third quarter of 2015. Total segment pipeline transportation volumes were 784 MBPD for the third quarter of 2016 compared to 816 MBPD for the same quarter of 2015.

Enterprise’s refined products pipelines and related services business reported a 34 percent increase in gross operating margin for the third quarter of 2016 to $71 million from $53 million for the third quarter of 2015. Gross operating margin from the TE Products Pipeline and related terminals increased $14 million primarily as a result of lower operating expenses. The partnership’s refined products marine terminal in Beaumont contributed $9 million to the increase in gross operating margin, primarily due to higher demand for storage and marine vessel loading services.

The partnership’s propylene business reported a 23 percent increase in gross operating margin to $57 million for the third quarter of 2016 from $47 million for the third quarter of 2015. This increase was primarily due to higher sales margins, including those from record propylene exports, and lower maintenance expenses. The increase was partially offset by pre-commissioning expenses associated with our propane dehydrogenation plant (“PDH”) in Mont Belvieu of $7 million for the third quarter of 2016. The PDH facility is under construction and is expected to begin commissioning activities in the second quarter of 2017. Propylene fractionation volumes were 76 MBPD for the third quarter of 2016 compared to 72 MBPD for the third quarter of last year.

Gross operating margin for Enterprise’s octane enhancement and high-purity isobutylene business was $17 million for the third quarter of 2016 versus $58 million for the third quarter of last year. The decrease was primarily due to lower sales margins, including hedging activities. Sales margins in this business were impacted in part by higher global inventories of gasoline products. Total production volumes from these plants were 27 MBPD for the third quarter of 2016 compared to 20 MBPD for the third quarter of last year.

Offshore Pipelines & Services – Enterprise closed on the sale of its offshore Gulf of Mexico business on July 24, 2015. As a result, the partnership had no contribution to gross operating margin from these assets in the third quarter of 2016 compared to $7 million in the third quarter of 2015.

Capitalization

Total debt principal outstanding at September 30, 2016 was $24.2 billion, including $1.5 billion of junior subordinated notes to which the nationally recognized debt rating agencies ascribe partial equity content. Approximately $1.0 billion of this debt is attributable to working capital and restricted cash associated with our marketing businesses, including capital related to contango opportunities. This marketing-related working capital and related debt is expected to decrease monthly through the first quarter of 2017. At September 30, 2016, Enterprise had consolidated liquidity of $3.5 billion, which was comprised of unrestricted cash on hand and available borrowing capacity under our revolving credit facilities.

Total capital spending in the third quarter of 2016 was $621 million, which includes $62 million of sustaining capital expenditures. For the first nine months of 2016, Enterprise’s capital spending was $2.6 billion including $179 million of sustaining capital expenditures. For 2016, we currently expect to invest approximately $2.8 billion for growth projects and approximately $250 million for sustaining capital expenditures. These amounts exclude $1.0 billion that Enterprise paid inJuly 2016 for the second and final installment payment for the acquisition of the EFS Midstream assets. (Original Source)

Shares of Enterprise Products Partners are currently trading at $26.39, down $0.08 or -0.28%. EPD has a 1-year high of $30.11 and a 1-year low of $19. The stock’s 50-day moving average is $26.98 and its 200-day moving average is $27.11.

On the ratings front, EPD has been the subject of a number of recent research reports. In a report issued on October 18, BMO analyst Danilo Juvane maintained a Buy rating on EPD, with a price target of $33, which represents a potential upside of 23% from where the stock is currently trading. Separately, on October 13, Jefferies’ Christopher Sighinolfi reiterated a Buy rating on the stock and has a price target of $33.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Danilo Juvane and Christopher Sighinolfi have an average loss of -0.1% and a return of 9.0% respectively. Juvane has a success rate of 26% and is ranked #2619 out of 4188 analysts, while Sighinolfi has a success rate of 62% and is ranked #292.

Overall, one research analyst has assigned a Hold rating and 8 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $34.00 which is 26.5% above where the stock closed yesterday.

Enterprise Products Partners LP is a North American midstream energy company that is engaged in providing a wide range of services to producers and consumers of natural gas, natural gas liquids or NGLs, crude oil, refined products and certain petrochemicals. The company operates through following reportable segments: NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services and Petrochemical & Refined Products Services.