Last quarter was the breakout quarter that Enterprise Products Partners' (NYSE: EPD) investors were waiting for. Through the commodity downturn, the company brought several billion dollars worth of projects on line, only to produce flat results as throughput volumes of existing assets declined. With oil and gas production back on the rebound -- for now -- Enterprise is benefiting immensely; and management wants investors to know there is much more to come.
Here is a selection of quotes from the company's most recent conference call that highlight how management is approaching the current market, where it sees its growth opportunities, and what investors can expect in the coming years.
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Big surge in demand on the horizon
Thanks to the development of shale gas in the U.S., there has been a wave of investments related to monetizing that stuff. Up until now, we haven't felt the impact of those investments because they have taken so long to build. A great example is Cheniere Energy's Sabine Pass LNG export terminal, which is still only halfway complete with phase one construction. According to Enterprise's CEO Jim Teague, many of those investments are coming on stream, and it will likely result in a massive uplift in demand.
You have to give Enterprise credit for its strategy during the downturn. Rather than scaling back investments to conserve capital, it continued to add new projects to the queue and has introduced new markets for U.S. hydrocarbons such as propane & ethane exports. As demand picks back up, Enterprise's system will be well suited to meet it.
The Permian Basin continues to be a powerhouse
It's no secret that the Permian Basin in West Texas continues to be the premier oil producing region in the U.S. At the same time, though, natural gas liquids (NGLs) have become a major drilling byproduct. NGLs are Enterprise's specialty, and the company is looking to use the Permian as its next phase of growth. Here's Teague on some of the recent investments in the region.
Buy or build?
One analyst followed up with management on Permian activity and wondered if the company was considering making some acquisitions in the area. After all, the Permian has been an oil producing region for close to 100 years, and there is a lot of infrastructures already there. According to Teague, though, the economics for Permian projects is still very much on the side of newbuilds and capacity expansion.
Free upside in formerly struggling markets
Of course, the Permian Basin isn't the only place where Enterprise has assets. One worry is that assets in these slightly less economic regions such as the Haynesville shale or Eagle Ford may not be producing the returns some had hoped a few years ago. Looking to ease those concerns, Teague mentioned the progress they have seen in the Haynesville shale...
... and in the Eagle Ford
The key here is that, unlike the Permian where lots of additional construction is needed to meet growing demand, Enterprise already has significant assets in the region that are currently under-utilized. There aren't a lot of variable costs when it comes to operating pipelines, so bringing those assets back up to capacity should flow directly to the bottom line.
Feeding the beast
A couple of months ago, ExxonMobil announced a joint venture with Saudi Arabian chemical company SABIC to build an ethane steam cracker in Corpus Christi, Texas. This $10 billion new facility will produce about 1.8 million tons of ethylene -- a base product for manufacturing petrochemicals. According to Teague, Enterprise will want to be a supplier of this project.
With sizable assets in the Eagle Ford shale already -- the closest oil and gas producing region to the plant -- Enterprise does have a leg up on supplying the facility. Based on its size, though, Teague said Enterprise would have to add some significant infrastructure to supply the facility adequately.
This is just another investment opportunity that Enterprise has in the Texas & broader Gulf Coast region. The company currently has $8.4 billion in projects under construction, and new ones like this are likely to add to that lot relatively soon. Teague even mentioned that it has lots of investment ideas in the hopper, but management has had to temper its expectations as it doesn't want to get ahead of itself with too much spending all at once.
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Tyler Crowe owns shares of Enterprise Products Partners and ExxonMobil. The Motley Fool owns shares of ExxonMobil. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.