In most businesses, earnings results that show little to no improvement for more than a year would be extremely discouraging. For those in the oil and gas business, though, maintaining consistent earnings and cash flow throughout this recent downcycle is an accomplishment worth celebrating.
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That is exactly what Enterprise Products Partners (NYSE: EPD) was able to do when it reported fourth-quarter earnings, and it is now looking forward to 2017 as it puts some of its new assets to work. Here's a quick look at Enterprise's results for the prior quarter and what investors can expect in the coming year.
Image source: Getty Images.
Enterprise Products Partners earnings: The raw numbers
|Results*||Q4 2016||Q3 2016||Q4 2015|
|Gross operating margin||$1,357||$1,312||$1,355|
|Earnings per share||$0.31||$0.30||$0.34|
|Distributable cash flow||$1,031||$978||$1,089|
Data source: Enterprise Products Partners earnings release.*in millions, except per-share data.
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Surprise, surprise -- another quarter of relatively flat results from Enterprise Products Partners. As has been the case for several quarters in a row, revenue and cash flows from new assets helped to offset declines at existing assets. It should also be noted that there was some downtime that impacted this past quarter. For example, itsPascagoula natural gas processing plant has been down since the middle of 2016 because of fire damage. Also, its ethane export terminal only shipped 14,000 barrels per day because of some weather concerns and customers electing to defer loadings. Enterprise says that both of these issues are resolved and the company is back on track.
Image source: Enterprise Product Partners earnings release, author's chart.
What happened with Enterprise Products Partners this quarter?
- Total capital spending for the fourth quarter was $553 million. Spending for the entire fiscal year 2016 came to $4.1 billion, with $1 million of that going toward acquiring assets back in 2015 that involved a second installment payment.
- Management did the same thing it has done for several quarters now and raised its payout by 5.1% compared to its year-over-year payment. That made for the company's 50th consecutive quarterly increase and the 19th year in a row in which it raised its payout.
- Distribution coverage ratio for the quarter was 1.2 times, which is an improvement over the prior quarter. For 2016, the company generated $709 million in excess of its payout requirements that were used to reinvest in the business.
- On the day of the earnings announcement, management announced that it would begin work on an isobutane dehydrogenation unit in the Gulf Coast that would produce 425,000 tons of isobutylene. This particular petrochemical is used for lubricants, rubber products, and blendstocks for gasoline. It also announced that it would be expanding one of its major crude oil pipelines. Management didn't give a total dollar amount on the projects, but in the past couple days, its publicly disclosed number of projects has jumped from $5.3 billion to $6.7 billion, so it gives you an idea of what those facilities will cost.
What management had to say
According to CEO Jim Teague:
During 2016, we successfully completed$2.2 billionof organic growth projects that began commercial operations, including two new cryogenic natural gas processing plants in theDelaware Basinand our ethane export marine terminal on the Houston Ship Channel. Our commercial teams have been successful in developing new organic growth projects during this business cycle. Including our isobutane dehydrogenation ("iBDH") project that we announced this morning, we have approximately$6.7 billionof growth capital projects under construction that are scheduled for completion between now and 2019. Our largest project, the propane dehydrogenation ("PDH") facility at ourMont Belvieucomplex, is expected to begin commercial operations mid-2017. Due to the increase in activity and expected crude oil volume growth from thePermian Basin, we have elected to increase the capacity of our Midland-to-ECHO pipeline to 450,000 barrels per day. These projects provide visibility to new sources of distributable cash flow and support for distributions to our partners.
It wouldn't be surprising if shareholders of Enterprise Products Partners have fallen asleep looking at the performance over the past several quarters because it has pretty much been the same thing. With its propane dehydrogenation unit coming on line in the coming months and the increased drilling activity taking place in the American oil patch, though, this should change in 2017. It's encouraging to see the company announce some new major capital projects, as it will help ensure those steady distribution increases should continue in the future.
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