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Enterprise sees Q2 profit lift amid higher gas pipeline, processing volumes

Highlights

Growth spending increases as more projects sanctioned

Washington policies eyed as energy transition considered

Enterprise Products Partners reported a rise in second quarter profit July 28 as an ongoing recovery in demand spurred increases in natural gas pipeline and processing volumes.

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NGL, crude oil, refined products & petrochemical pipeline volumes — as a combined category — also advanced quarter on quarter.

With the continued improvement in market conditions, the US operator of pipelines, processing plants, and export and storage facilities sees opportunities to potentially increase spending on growth projects over the next two years beyond current estimates, following the significant cuts that were first implemented in 2020 because of the coronavirus pandemic.

It also is considering emissions reduction initiatives, though pricier proposals such as carbon capture could take years and require policy changes in Washington, executives said during an investor conference call. In the near term, Enterprise continues to look for opportunities to repurpose pipelines to carry different resources, depending on demand.

"This time last year, we were slipping deeper into the [coronavirus] pandemic. It looked and felt like a black hole for some," co-CEO James Teague said on the call.

He added, "we were determined in the middle of the pandemic to make money, not make excuses. Fast-forward to today, the environment and the sentiment are completely different."

For the three months ended June 30, Enterprise reported a more than 7% increase in net income attributable to common unitholders, to $1.11 billion, or 50 cents/share, compared with profit of $1.03 billion, or 47 cents/share, for the same period a year earlier. Second-quarter revenue jumped 64% to $9.45 billion from $5.75 billion during the year-ago quarter. Total costs and expenses rose 83% to $8.12 billion in the latest quarter.

Total natural gas transportation volumes were 14.2 trillion Btu/d for Q2, compared with 13 TBtu/d for Q2 2020. Total fee-based processing volumes were 4.2 Bcf/d in the Q2, up from 4.1 Bcf/d a year earlier. The partnership's equity NGL production increased to 198,000 b/d in Q2, compared with 188,000 b/d during Q2 2020.

Growth capital spending this year and in 2022 and 2023 is currently estimated to be $1.7 billion, $800 million, and $400 million, respectively, in line with previous estimates. Enterprise, however, expects the numbers next year and the year after to increase as more projects are sanctioned, Teague said.

Major construction projects in progress remain on time and on budget, Enterprise said. Scheduled for completion in Q4 is the Gillis natural gas pipeline, which will connect Haynesville Shale production with LNG markets in southwestern Louisiana and a natural gasoline treater in Chambers County, Texas.

"During last year's collapse, we leaned hard on our marketing teams. We said at the time our storage was worth its weight in gold, as we took advantage of steep contango arb in the system, coupled with a significant cost-cutting by our operations," Teague said. "This year, with prices and volumes up considerably, our assets are leading the way."

Looking to Washington, Enterprise is awaiting direction on policy, as it continues to consider the best ways to address future impacts from the global energy transition to greater use of clean-burning fuels. Uncertainty makes quick decisions impractical, executives said.

"I think the energy industry is in a little bit of a conundrum," co-CEO and CFO Randy Fowler said on the investor call. "We just need some more clarity, whether it's tax policy, regulatory policy, energy policy."