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Enterprise weighs US tax policy amid cautious midstream gas, oil spending

Highlights

'In three-six months, we'll be a lot smarter': co-CEO

Acadian system expansion to serve LNG on track

Houston — Enterprise Products Partners will consider the direction of US tax policy under the Biden administration in deciding how to allocate its spending beyond currently sanctioned midstream growth projects, executives said May 3.

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The company said in a statement accompanying the release of its first-quarter financial results and in an investor conference call afterward that it is sticking with plans to spend $1.6 billion in 2021, $800 million in 2022 and $400 million in 2023 on growth capital investments, excluding spending on its proposed deepwater Seaport Oil Terminal.

The operator of pipelines, processing plants and export and storage facilities that serve the natural gas, NGLs, crude oil and petrochemical sectors reported a slightly lower first-quarter profit due in part to higher costs and disruptions at its facilities during the Texas freeze disaster in February. While rebounding Permian Basin production has been a positive sign for volumes on Enterprise's system, the company sees Washington as a wildcard.

"As we emerge into the Biden era, this is like the third major tax swing that we've seen in 100 years," co-CEO Randy Fowler said during the call. "And, so, I think we're paying attention to see which of these proposals actually make it into legislation and then actually get passed."

He added, " I think if we come in and we see good capital projects, we're going to allocate our capital there, but to come in and say anything beyond that, I think we'd like to see what tax policy looks like. I think, in three-six months, we'll be a lot smarter."

Total gas transportation volumes slid to 13.7 TBtu/d for the first quarter of 2021 from 13.9 TBtu/d during the year-earlier quarter, Enterprise said. The company's Texas Intrastate natural gas pipeline, natural gas processing plants and storage facilities were impacted by rolling blackouts during the Texas freeze. Lost revenue from these disruptions, higher power and natural gas costs, as well as losses on natural gas hedges, were mitigated by sales of natural gas to electricity generators, natural gas utilities and industrial customers to assist them in meeting their needs, Enterprise said.

Enterprise's volumes were impacted by many of its producer, petrochemical and refinery customers experiencing disruptions both during and following the storms as repairs were made to freeze-damaged facilities.

Net income attributable to common unitholders fell in the January-March quarter to $1.34 billion, or 61 cents/ share, from $1.35 billion, or 61 cents/share, in the year-ago period. While total revenue rose 22% to $9.16 billion in the first quarter, total costs and expenses rose 24% to $7.61 billion.

Enterprise remains on schedule to complete the expansion of its Acadian Gas system to Gillis, Louisiana, to serve LNG markets, the expansion of its ethylene and propylene pipeline systems and the construction of a natural gasoline hydrotreater during the second half of this year. It said in March that, with respect to other operations, it may be willing to repurpose multiple US pipelines to handle different commodities or flow in different directions as seeks to keep spending in check.

Market questions

Addressing market chatter over its cautious posture toward growth projects, co-CEO James Teague said during the earnings call that the runway that investors are used to seeing from Enterprise will resurface eventually.

"Sometimes I read reports that make me think investors are worried that we're running out of projects. And then the next report I pick up makes me think investors are worried that we're going to spend a dollar," Teague said. "We have never been afraid of opportunity, but we definitely respect this part of the cycle."

Enterprise sees hydrogen and carbon capture utilization and storage as potential opportunities, though it dismisses the idea that global demand for fossil fuels will someday disappear altogether.

"I hear a lot about energy evolution," Teague said. " Note that we don't say transition."