Monday November 12, 2012
by Roger Conrad, editor Utility Forecaster
Enterprise Products Partners LP (EPD) reported strong performance at four of its five business units in the third quarter.
The MLP’s results are particularly impressive in light of what have been weak margins for natural gas liquids processing in 2012.
The company enjoyed record onshore crude oil and natural gas transportation volumes, record fee-based natural gas processing volumes and near-record transportation and fractionation volumes for natural gas liquids. The only laggard was in the offshore pipelines and services segment.
This segment suffered lower volumes and fee revenues as an after effect from the 2010-2011 drilling moratorium in the Gulf of Mexico.
Management reports that rig count and drilling activity in the Gulf is now approaching pre-moratorium levels, which should give these operations a boost.
Meanwhile, Enterprise continues to fuel growth at its other operations with a robust capital spending program, with $4 billion in new fee-generating assets coming on stream in the last 12 months. Another $3.7 billion will begin operations in fourth-quarter 2012 and early 2013.
Distributable cash flow -- the primary metric for master limited partnerships’ (MLP) profits -- surged to $743 million, for a 1.4-to-1 dividend coverage ratio excluding one-time items (payout ratio 71.4 percent).
That’s the primary fuel behind the MLP’s dividend growth rate, which accelerated to 6.1 percent during the second half of 2012.
Fee-based income is anticipated to contribute 80 percent of cash flow in 2013 and an even higher percentage in 2014, insulating profits against volatile energy prices.
The total package is a very strong MLP on track for double-digit annual returns for years to come. Buy Enterprise up to my new target of $55 if you haven’t yet.
Learn more about this financial newsletter at Roger Conrad's Utility Forecaster.