Enterprise ekes out Q3 profit rise on cost cuts despite lower gas volumes

Enterprise Products Partners' third-quarter natural gas transportation volumes fell as coronavirus-related market challenges continued, but it posted a slightly higher profit as it cut costs and scrapped a major crude project, the company said Oct. 28.

Amid uncertainty about the timing of a full market recovery, the Houston-based operator of oil, gas and NGL pipelines as well as gas processing plants and export facilities said it would reduce spending on growth projects the next two years by hundreds of millions of dollars more than previous plans.

Enterprise is insulated somewhat from the demand shock from the virus because of its diverse portfolio of operations that is spread across the US, and its tentacles in multiple commodity sectors. However, volatile prices, especially for crude, can and have caused challenges for the company, though not to the same degree as some of its peers.

"We're turning over every rock in order to manage costs, but we're doing so without sacrificing safety or reliability," co-CEO James Teague said during an investor conference call to discuss the latest financial results.

For 2021 and 2022, Enterprise expects growth capital investments on sanctioned projects to be approximately $1.6 billion and $800 million, respectively. That is down from the estimate of $2.3 billion and $1 billion, respectively, that Enterprise provided when it released its second-quarter earnings. The company currently expects growth capital investments for 2020 to total about $2.9 billion.

The latest estimates do not include capital investments associated with the partnership's proposed deep water offshore crude oil terminal, which remains subject to governmental approval, Enterprise said. The company canceled its planned Midland-to-ECHO 4 crude pipeline expansion in September.

For the July-September quarter, Enterprise reported net income attributable to common unitholders of $1.05 billion, or 48 cents a share, compared with a profit of $1.02 billion, or 46 cents a share, in the same period of 2019. Third-quarter revenue fell 13% on the year to $6.92 billion. Total costs and expenses in the third quarter, however, declined 15% to $5.62 billion from a year ago.

Total natural gas transportation volumes were 13.1 TBtus/d in the third quarter, compared with 14.5 TBtus/d for the same period last year. Declines were seen on the Acadian Pipeline System and the Texas Intrastate System, Enterprise's largest natural gas pipeline. Sales margins were impacted by lower regional natural gas price spreads across Texas, Enterprise said.

Teague offered optimism that Enterprise would not only be able to weather the market storm due to the virus, but also the global energy transition towards use of more renewable fuels to reduce carbon emissions.

"I struggle with the term that I hear a lot, 'energy transition,'" Teague said. "In my mind, 'energy evolution' is more appropriate and that we are gradually moving to a world where renewables will complement but not replace oil and gas. We also understand that access to affordable, reliable energy available at scale right now is what is going to continue to advance a higher quality of life worldwide."

M&A outlook

As for the consolidation that is sweeping parts of the upstream and midstream sectors, Teague was lukewarm to the idea of Enterprise participating in a major M&A deal in the near term.

"We look at a lot of opportunities that come through the front door down there every week," Teague said. "We haven't seen any that makes sense for us."

Enterprise is going to be limited in its ability to consolidate given its footprint and the antitrust issues that it might face, Teague said.

"Trust me, we've looked at a lot of companies, and there are companies out there that I personally would love to have, but there's no way we can do it because we'd have to sell everything we bought," Teague said.