InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close
FEATURED STRATEGY

This Two-Minute Market Move Could Make You Rich

This Two-Minute Market Move Could Make You Rich[Revealed] How to generate instant income from the stock market. Over and over again. At will. This technique is so powerful – and safe – we’re guaranteeing you can use it to generate $1 million (or more) in retirement cash. And we’ll even send you a $1,000 check to kickstart your journey. Go here for details.

 

Enterprise Awash in Liquids; Profit Sinks

By Robert Rapier on November 3, 2015

Enterprise Products Partners (NYSE: EPD) is the largest master limited partnership (MLP) by far, with more than double the market capitalization of the second-largest MLP, Energy Transfer Partners (NYSE: ETP). Enterprise Products has extensive assets in most of the important oil and gas-producing regions of the country:

151103MLPIIepd

Source: Enterprise Products Partners

As a result, analysts closely follow the partnership’s earnings calls to gauge the health of the entire midstream energy sector. Last week Enterprise hosted an earnings call after reporting third-quarter results, and here are some highlights.

Net income for the third quarter was down relative to a year ago — $658 million compared to $699 million for the third quarter of 2014 — but the partnership reported a 13% increase in liquid transportation volumes to a record 5.9 million barrels per day (bpd). Liquid volumes transported increased for crude oil (+21% to a record 1.5 million bpd), refined products and petrochemical volumes (+12% to a record 904,000 bpd) and natural gas liquids (NGL) (+10% to a record 3.2 million bpd). The NGL transportation volumes included a 33% increase in LPG export volumes to a record 320,000 barrels a day.  

Even though third-quarter income was $0.32 per unit compared with $0.37 per unit for the third quarter of 2014, Enterprise Products generated $970 million of distributable cash flow. This was sufficient for 1.3x distribution coverage and the 45th consecutive quarterly distribution increase. The annualized yield based on the announced distribution of $0.385 per unit is 5.6%.

Note that even though year-over year income only dropped by 13.5%, EPD units have been hit as hard as the shares of many oil producers. For the past 12 months, EPD has a total return of -25.1%, worse than the Energy Select Sector SPDR ETF (XLE), which is down 20.4% over the past year. Conservative investors looking to add exposure to the energy sector should take note of this opportunity.

The role of incentive distribution rights (IDRs) in the relationship between limited partners (LPs) and a general partner (GP) has been the topic of a great deal of discussion over the years. The idea is that by paying the GP a growing portion of the distribution, there is a greater incentive for the GP to grow the partnership’s distribution as quickly as is practical. EPD CEO Michael Creel left no doubt where he stands on the matter when he noted what would have happened had EPD’s IDRs not been eliminated in 2010:

“Enterprise would have paid more than $6 billion to its general partner under the IDR since the fourth quarter of 2010 and our distribution this quarter would be 0.7 times instead of 1.3 times, and that assumes that we would have the same growth trajectory, the same cash distribution and the same credit ratings and that’s a big assumption.”

Creel was skeptical that a potential change in IRS regulations could hurt the business, “Certainly to the extent that the IRS has expanded the scope of qualifying income over time, they may be trying to change that, but when they start trying to change the original legislation, that seems to be problematic. The end result is we don’t think there is going to be any significant impact on us.”

Creel also stressed the importance of the Permian Basin to the partnership, noting that some 30% of all U.S. rigs are now deployed there. EPD is building two new processing plants and adding to its takeaway capacity for natural gas liquids in the region.

Acknowledging the tough operating environment, Chief Operating Officer James Teague said that the partnership’s focus has shifted from moving greater volumes to moving volumes more efficiently. He further noted that “all indications are that demand is responding to low prices; a trend that we believe will continue in 2016 and one that will help the global oversupply situation that began in 2014.” Teague said Enterprise Products is driven to find “the opportunities that are invariably created during chaos” — which is good all around advice for energy investors in this market.

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

 

 


You might also enjoy…

 

Forget Buy and Hold. Here’s how to retire faster…

I’m not a fan of “buy and hold.” Gurus like to tell you that patience is the key, but I call horse puckey.

We’ve discovered an investing technique that consistently pays out easy-to-repeat profits.

One that’s proven to beat the market 2,082% in head-to-head testing.

And one that’s generated over 488 winners since 2011.

This method is so powerful, in fact, some of the investors we’ve let use it reported back to us saying they’ve made $71,425… $82,371… and even as much as $151,000 in a single year thanks to this “trick.”

That’s how powerful this investing technique is!

What what exactly is this mysterious method? I’ve put all the details together here.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.