Enterprise Products Partners' Q4 2020 profits hit by slow energy demand recovery

Houston —

Enterprise Products Partners reported Feb. 3 a 69% decline in profit for the final three months of 2020 amid a slow demand recovery from the worst shocks of the coronavirus pandemic.

The operator of pipelines, processing plants and export and storage facilities recorded a year-on-year decline in natural gas and NGL, crude oil, refined products and petrochemical transportation volumes for the October-December quarter. NGL fractionation and propylene plant production volumes rose.

The company reiterated its plan to cut spending over the next two years, though it will bring online several additions during that timeframe. They include the expansion of an ethane pipeline serving the petrochemical industry on the Gulf Coast, a gas pipeline that will deliver Haynesville production to LNG markets in Louisiana and a hydrotreater in Texas that will remove sulfur in natural gasoline.

Perhaps the greatest uncertainty going forward comes from potential policy changes from the Biden administration that could affect fossil fuel interests. During an investor conference call, Enterprise executives acknowledged the impact that limits on shale drilling volumes would have on pipeline, processing and export volumes.

"Reading the news, some may think the sun is setting on oil and gas," co-CEO James Teague said on the call. "Obviously, policy proposals from this new administration have been supportive of renewables. The cleaner energy future does not mean a world without fossil fuels. The reality is nothing could be further from the truth."

Teague said that while discussion of the global energy transition often implies shifting away from traditional hydrocarbons, Enterprise still believes an "all-of-the-above approach" will be required to meet the world's growing energy needs.

"Limiting supply only makes Russia, OPEC and Iran richer and more powerful," Teague said. "And it says to the 3 billion people on this planet that live in energy poverty that US politicians don't care about their quality of life."

Policy outlook

Enterprise sees potential production limits as bullish for prices and Biden's revocation of a key permit for TC Energy's Keystone XL heavy crude pipeline -- effectively suspending work on the $8 billion project -- as potentially having a positive effect on throughput on Enterprise's Seaway pipeline system. Also, Enterprise is working with Magellan Midstream Partners to make Houston the most desirable destination to ship crude oil. They are teaming to develop a new crude oil futures contract.

"It works for producers, it should work for refiners, it should work for consumers, and the fact there's transparency for people to go out and conduct their business long-term," Brent Secrest, Enterprise's chief commercial officer, said on the investor call.

For the three months ended Dec. 31, Enterprise reported net income attributable to common unit holders of $337 million, or 15 cents a share, compared with a profit of $1.1 billion, or 50 cents a share, in the same period of 2019. Fourth-quarter 2020 revenue fell 12% to $7.04 billion from $8.01 billion in the October-December quarter of 2019.

Market volumes

Total natural gas transportation volumes slid to 13.7 TBtus/d in the final quarter of 2020 from 13.8 TBtus/d for the same quarter of 2019. Total crude oil pipeline transportation volumes in the latest quarter fell year-on-year to 2 million b/d from 2.3 million b/d. NGL fractionation volumes jumped 20% to 1.3 million b/d in the fourth quarter of 2020 from 1.1 million b/d in the same period of 2019, Enterprise said.

The prolific Permian Basin in West Texas and southeastern New Mexico remains a key market for Enterprise, supplying significant volumes of oil and gas to its pipeline system.

With the Biden administration talking about limiting drilling on federal lands, Enterprise is mindful of how that could impact future production.

"It's hard for me to say that we're going to have a bunch of discretionary barrels until the Permian Basin recovers, and that's going to take years, but I feel when it comes to weathering the storm, we'll be okay," Secrest said.