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Enterprise may tap markets for growth projects despite 'goal to self-fund'

Enterprise Products Partners LP remains committed to self-funding at least part of its equity needs in 2019, but executives at the energy pipeline giant emphasized that rising commodity production could push Enterprise to access public funds for demand-induced projects.

"It's our goal to self-fund, but to the extent that there's a growth opportunity that takes us beyond our means, we think for the long term and certainly wouldn't want to miss an opportunity because of that objective," CFO Bryan Bulawa said during Enterprise's March 7 analyst and investor day conference.

Enterprise executives did not provide specifics on any additional projects but stipulated that they would involve expansions of the master limited partnership's NGL, petrochemical and export terminal assets.

The partnership in October 2017 announced a scale-back in expected quarterly distribution growth, which is intended to enable Enterprise to contribute 10% of the roughly $1.25 billion equity CapEx planned for 2019. Enterprise's decision was widely applauded among analysts who pointed to a widely respected and veteran management team, and midstream peers like MPLX LP and Magellan Midstream Partners LP followed with their own pledges to retain more cash at the partnership level to avoid a prohibitively high cost of public equity.

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Bulawa also highlighted Enterprise's supportive relationship with its general partner, which eliminated required cash payments from the MLP in 2010. Several other midstream companies released their MLPs from those incentive distribution rights in 2017 as the capital costs of keeping them in place translated to slumping stock prices and pressure from stability-focused institutional investors. "[Enterprise] has consistently marched to the beat of a different drummer," he said. "That drummer is the [limited partnership] unit holder."

Still, CEO A. James Teague lamented the disconnect between the MLP's investor-friendly evolution and its performance on Wall Street, even as the midstream sector as a whole continues to see valuations go down.

"We closed at below $25 [per unit] yesterday, and when you look at that kind of performance, you think: 'What the heck?' It's frustrating as hell," he noted. "Sometimes I don't think the market gives us credit for having a vision and then exercising it."

Enterprise executives had a more sanguine outlook about potential impacts from a possible 25% U.S. tariff on imported steel. Executive Vice President Graham Bacon assured analysts and investors that the partnership maintains "strong relationships" with domestic pipe mills and that all of the pipe for the Shin Oak NGL pipeline from the Permian Basin to Enterprise's Mont Belvieu, Texas, fractionation and storage complex has been purchased. The line is expected to begin service in the second quarter of 2019.

"We've worked in environments and done projects where steel has been at these [higher] prices, and so we can be successful and we can execute," he said, adding that pipe and steel pricing increased in 2017 and is expected to rise further in 2018.

A coalition of oil and gas industry groups criticized the proposed tariff in a March 7 note to President Donald Trump and recommended that the federal government exempt steel used in energy production, processing, refining, transportation and distribution. Pipeline operator Plains All American Pipeline LP have commented that the policy could kill projects dependent on certain sizes of pipe.