Enterprise Products Partners (NYSE: EPD) is an American natural gas and crude oil pipeline company, and with a $60 billion market cap, one of the largest. The company has had a difficult time since the start of the oil crash, with its stock price dropping by almost 40%. Despite this, as we will see through this article, the company has impressive assets, strong growth potential, and a commitment to shareholders.
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Enterprise Products Partners Impressive Assets
Enterprise Products Partners has an impressive portfolio of assets that will provide the company with significant long-term cash flow.
Enterprise Products Partners Asset Overview – Enterprise Products Partners Investor Presentation
Enterprise Products Partners assets consist of an astounding 50 thousand miles of pipeline with 260 million barrels of storage and a total of 60 different processing centers. The company also has 18 deepwater docks to provide loading. All assets that are essential to the oil environment and generate the company significant fee-based revenue regardless of what the oil market does.
On top of that, the company has significant assets under construction with 1,000 pipelines and 2 gas processing plants under construction. That production should increase the companys cash flow by several percent providing it with growth opportunity. This growth opportunity should enable to company to increase its dividend, further rewarding its shareholders.
American Oil Growth – Enterprise Products Partners Investor Presentation
And as we can see here, American crude production, which the company has been focused on, has been significantly increased. Total supply from American oil is anticipated to grow by an astounding 3 million barrels per day over the next 5 years. This is all oil that will need to be transported, oil whose total transport could double a company the size of Enterprise Products Partners.
That significant additional transport, which a significant portion of Enterprise Products Partners’ present assets are tied to, means significant growth. As we can see here, Enterprise Products Partners has significant assets tied to major American oil plays that are anticipated to experience rapid growth.
Enterprise Products Partners Strong Growth Potential
On top of this impressive asset portfolio, Enterprise Products Partners as a company is undergoing significant growth. The company plans to use this growth to increase its reliable fee-based revenue which allows it to increase its dividends, something I am excited to see.
Enterprise Products Partners Capital Spending – Enterprise Products Partners Investor Presentation
Enterprise Products Partners has $9.0 billion of capital growth projects at the present time, with more to come. The company has roughly $3.1 billion in total growth projects for 2017 with an additional $3.9 billion in 2018 and $2.3 billion in 2019. These are all projects spread across the entirety of the companys portfolio and they mean the company will be deploying an astounding $9.3 billion in capital in the next 2 years.
Enterprise Products Partners tends to have a high single-digit return on its capital employed. That means that the company would have $0.8 billion in additional earnings by year-end 2019 from the deployment of this capital. Currently, Enterprise Products Partners respectable mid to high single-digit yield costs the company $3.7 billion a year.
That means the deployment of this capital could enable the company to grow its dividend by more than 25% in the next two years, should it choose to use it for this. This alone shows the companys impressive growth potential.
Enterprise Products Partners New Projects – Enterprise Products Partners Investor Presentation
On top of this, Enterprise Products Partners is focused on expanding its Permian Basin assets significantly. The Permian Basin is using its capacity at 100% while production is anticipated to grow from roughly 2.5 million barrels at the present to almost 5 million barrels by the early-2020s. That near doubling will need to be transported, and whoever gets there first will generate significant revenue from it.
Enterprise Products Partners is creating the Orlas Gas Plant 1 & 2 with total capacity of 80 thousand barrels per day of NGL production. The company is bringing its gas processing capacity to more than 1 billion cubic feet/day and plans to fully integrate this system with the companys 36 Texas interstate pipeline. The company anticipates startup of this system by late-2018 which should be immediately accretive.
The company is also building a new NGL pipeline in the form of a 571-mile 24 NGL pipeline from the Permian to Mont Belvieu. This pipeline will have an initial capacity of 250 thousand barrels per day but be expandable to 600 thousand barrels per day, increasing Enterprise Products Partners production significantly. On top of that, this pipeline, which is a few years away from production, is already supported by long-term customer agreements.
Overall, that means that Enterprise Products Partners is undergoing significant capital expansion in a region of rapid growth. The company anticipates that this production will provide the company with significant growth in reliable earnings, earnings which can then be paid out to shareholders.
Enterprise Products Partners PDH Facility – Enterprise Products Partners Investor Presentation
The company is also expanding its potential profits to other regions, including chemical profits. The company is currently commissioning its new PDH facility and plans to ramp up production to the end of this year. This facility is anticipated to produce of to 1.65 billion pounds/year of PGP at a production rate of 25 thousand barrels per day while consuming 35 thousand barrels per day of propane. That is significant production.
And the potential of such plants is clear. The demand for such a plant is so high that the company has already managed to sell 100% of the capacity for the plant under fee-based contracts with investment grade companies – contracts that will last 15 years. That means 15 years of stable fee-based cash flow for Enterprise Products Partners which it can subsequently pass down to its investors.
The company switched to a new contractor in December 2015 significantly increasing productivity. If the company continues with that contractor, the company can build new plants that generate significant new revenue. This is something the company will always have in its back pocket.
Enterprise Products Partners Commitment to Shareholders
As a growing company with significant potential going forward, Enterprise Products Partners has continued to remain committed to shareholders and reward them for their loyalty as the company grows.
Enterprise Products Partners Debt Yield – Enterprise Products Partners Investor Presentation
To avoid the fate of Kinder Morgan (NYSE: KMI) which significantly hurt its relationship with shareholders when it was forced to cut its dividend as its debt increased, Enterprise Products Partners has been focused on improving its debt portfolio. The company has roughly $15 billion in debt but has managed to decrease the average maturity by two years while increasing its average cost of debt by more than 1%.
This decrease in average cost in debt means that the company is significantly lowering its expenses and therefore increasing its cash flow. The companys current debt leverage ratio of 4.3x in the midst of an oil crash is fairly low. That gives the company significant room for expansion which it has put towards shareholders.
Enterprise Products Partners Financial Details – Enterprise Products Partners Investor Presentation
As we can see here, Enterprise Products Partners has managed to keep its distributable cash flow strong. The company anticipates 2017 distributable cash flow of $4.2 billion, up from the past year, which it can use to increase dividends by mid single digits. At the same time, the company has retained distributable cash flow which it can use to pay down debt or it can use for additional growth.
However, fundamentally, the company has remained committed to shareholders. The company has increased its declared distributions from $1.37 per share in 2013 to $1.67 per share taking the companys 2017 distributions and annualizing them. That represents double-digit growth in a difficult oil environment and shows the companys long-term commitment. As we can see here, the companys commitment to shareholders are part of what make it such a good investment.
Enterprise Products Partners, like all other oil related companies, has had a difficult time since the start of the oil crash. Despite that, the company has continued to remain committed to shareholders with its dividend yield of more than 6.5%. The company has retained a significant commitment towards shareholders and has continued to grow its distributable cash flow to pay them more.
Specifically, the company has a dominant position in the American midstream markets. On top of that, the company has more than $9 billion in identified growth projects that should significantly increase its capital. The company can then use this capital to pay down debt, undergo additional growth, or reward shareholders. As we can see here, the company is a midstream company with significant growth potential
Disclosure: I am/we are long EPD, KMI.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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