Enterprise Cites 'Solid' Operating, Financial Results for 2Q10



Enterprise announced its financial results for the three and six months ended June 30, 2010. Results for 2009 have been recast to reflect the merger of TEPPCO Partners, L.P. with Enterprise as a reorganization of entities under common control in a manner similar to a pooling of interests. The TEPPCO merger was completed on October 26, 2009.

Highlights:

  • Enterprise increased its cash distribution with respect to the second quarter of 2010 to $0.575 per unit, or $2.30 per unit on an annualized basis, which represents a 5.5 percent increase from the distribution paid with respect to the second quarter of 2009. This is the 24th consecutive quarterly increase and the 33rd increase since the partnership's initial public offering ("IPO") in 1998;
  • Enterprise reported distributable cash flow of $532 million for the second quarter of 2010, which provided 1.3 times coverage of the $0.575 per unit cash distribution declared for limited partners. Approximately $100 million of distributable cash flow was retained for the second quarter of 2010;
  • Enterprise's natural gas liquid ("NGL"), crude oil, refined products and petrochemical pipeline volumes for the second quarter of 2010 were 4.0 million barrels per day while total natural gas pipeline volumes were a record 12.7 trillion British thermal units per day ("TBtud"). Equity NGL production for the second quarter of 2010 was a record 125 thousand barrels per day ("MBPD");
  • Enterprise made $1.6 billion of capital investments during the second quarter of 2010, including the $1.2 billion acquisition of natural gas gathering assets from subsidiaries of M2 Midstream LLC and $73 million of sustaining capital expenditures;
  • At June 30, 2010, Enterprise had liquidity (unrestricted cash and available capacity under credit facilities) of approximately $2.3 billion; and
  • Affiliates of Enterprise Products Company (formerly known as EPCO, Inc.), a private company owned by the Dan L. Duncan family and the largest unitholder of Enterprise Products Partners, have expressed their willingness to consider investing up to $200 million in 2010 to purchase additional common units from Enterprise Products Partners. They have committed to reinvest $50 million through the partnership's distribution reinvestment plan for the distribution to be paid on August 5, 2010 which would bring their total purchases of common units in 2010 up to $158 million.

Review and Comment on Second Quarter 2010 Results

Net income attributable to Enterprise for the second quarter of 2010 was $357 million, or $0.46 per unit on a fully diluted basis, versus $187 million, or $0.32 per unit on a fully diluted basis, for the second quarter of 2009. Net income attributable to Enterprise for the second quarter of 2009 does not include $12 million of net income attributable to the former owners of TEPPCO. Net income attributable to Enterprise for the second quarter of 2009 was reduced by $34 million, or $0.07 per unit, associated with the termination of the Texas Offshore Port System project ("TOPS"). The total charge related to TOPS was $68 million, of which 50 percent was attributable to the former owners of TEPPCO. Our consolidated financial results for periods prior to the TEPPCO merger reflect the combined results of Enterprise and TEPPCO. However, there was no change in net income attributable to Enterprise and earnings per unit for periods prior to completion of the TEPPCO merger since net income attributable to TEPPCO was allocated to noncontrolling interests.

On July 13, 2010, the Board of Directors of Enterprise's general partner approved an increase in the partnership's quarterly cash distribution rate with respect to the second quarter of 2010 to $0.575 per unit, representing a 5.5 percent increase over the $0.545 per unit rate that was paid with respect to the second quarter of 2009. Enterprise generated $532 million of distributable cash flow during the second quarter of 2010 compared to $328 million for the second quarter of 2009. Enterprise's distributable cash flow for the second quarter of 2010 provided 1.3 times coverage of the cash distributions to be paid to limited partners on August 5, 2010. The partnership retained approximately $100 million of distributable cash flow in the second quarter of 2010, which is available to reinvest in growth capital projects, reduce debt, and reduce the potential need to issue additional equity. Since the partnership's IPO in 1998, Enterprise has generated approximately $8.9 billion of distributable cash flow, of which it has retained approximately $1.4 billion. Distributable cash flow is a non-generally accepted accounting principle ("non-GAAP") financial measure that is defined and reconciled later in this press release to its most directly comparable U.S. GAAP financial measure, net cash flows provided by operating activities.

"Enterprise reported solid operating and financial results for the second quarter of 2010," said Michael A. Creel, president and chief executive officer of Enterprise. "During the second quarter of 2010, we continued to see strong volumes across our midstream system which operated at or near record levels. NGL, crude oil, refined products and petrochemical pipeline volumes averaged 4 million barrels per day, while natural gas pipeline volumes were a record 12.7 trillion Btu per day and equity NGL production was a record 125,000 barrels per day. Growth in gross operating margin continued to be supported by improvement in domestic and global economic activity; strong demand for NGLs and propylene by the petrochemical industry driven by the relative value of natural gas and NGLs compared to more costly crude oil derivatives; NGL production growth in the Rockies; and natural gas volume growth from shale plays in Texas and Louisiana."

"Enterprise has developed a number of opportunities to invest capital at attractive returns to build midstream facilities to support new sources of production as a result of the continued success of drilling programs by producers in the shale and non-conventional resource plays. These projects are principally fee-based and associated with natural gas, NGL and crude oil infrastructure to support production growth in the Haynesville and Eagle Ford Shale plays. During the second quarter, we completed our $1.2 billion acquisition of the State Line and Fairplay natural gas gathering pipelines and treating facilities in the Haynesville and Bossier Shale areas of North Louisiana and East Texas from subsidiaries of M2 Midstream. In June, we completed the expansion of the State Line system that increased its capacity up to 700 million cubic feet per day," stated Creel.

"In the second quarter, we were successful in raising $553 million of equity and $2 billion of long-term debt to fund the acquisition of the M2 Midstream assets, retire $500 million of maturing debt and provide financial flexibility to fund our growth capital investments. We have also been disciplined in managing Enterprise's distributable cash flow. For the first six months of 2010, we have increased our cash distributions by 2.7 percent and have retained over $250 million of distributable cash flow to reinvest in the growth of the partnership. At June 30, 2010, we had approximately $500 million of unrestricted cash on the balance sheet, total liquidity of $2.3 billion, and strong credit ratios. We believe we are in a strong position from which to execute our growth plans to increase the value of our partnership," stated Creel.

Certain of Enterprise's revenues, operating costs and expenses can fluctuate significantly based on the market prices of natural gas, NGLs and crude oil without necessarily affecting gross operating margin and operating income to the same degree. Revenue for the second quarter of 2010 increased to $7.5 billion from $5.4 billion in the same quarter of 2009 primarily attributable to an increase in sales volumes and energy prices. Gross operating margin was $815 million for the second quarter of 2010 compared to $622 million for the second quarter of 2009. Operating income was $548 million for the second quarter of 2010 versus $373 million for the same quarter of 2009. Adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") for the second quarter of 2010 was $794 million compared to $581 million for the second quarter of 2009.

Review of Segment Performance for the Second Quarter of 2010

NGL Pipelines & Services - Gross operating margin for the NGL Pipelines & Services segment increased 21 percent to $441 million for the second quarter of 2010 compared to $364 million for the same quarter of 2009.

Enterprise's natural gas processing business recorded a $49 million increase in gross operating margin to $268 million for the second quarter of 2010 from $219 million for the second quarter of 2009. The partnership's Rocky Mountain natural gas processing plants accounted for $23 million of this increase as a result of higher processing margins and an increase in equity NGL production. Gross operating margin from NGL marketing activities increased by $26 million compared to the second quarter of last year primarily due to higher sales volumes and margins.

Equity NGL production (the NGLs that Enterprise earns as a result of providing processing services) for the second quarter of 2010 increased to a record 125 MBPD compared to 118 MBPD in the second quarter of 2009. This increase in equity NGL production was due to a 12 MBPD increase in volumes from the partnership's Rocky Mountain plants which was partially offset by decreases from the partnership's South Texas and Louisiana plants. Fee-based natural gas processing volumes were 3.0 billion cubic feet per day ("Bcfd") for the second quarter of 2010 compared to 2.7 Bcfd for the second quarter of 2009 primarily reflecting an increase in fee-based processing volumes at plants in South Texas and the Rocky Mountains.

Gross operating margin from the partnership's NGL pipeline and storage business increased by 31 percent to $139 million in the second quarter of 2010 from $107 million in the second quarter of 2009. This $32 million increase in gross operating margin was primarily generated by the partnership's Dixie pipeline, NGL import/export terminal on the Houston Ship Channel and related pipeline, and the Tri-States and Lou-Tex NGL pipelines. NGL transportation volumes for the second quarter of 2010 increased 10 percent, or 201 MBPD, to 2.2 million barrels per day.

Gross operating margin from Enterprise's NGL fractionation business was $34 million for the second quarter of 2010 compared to $38 million reported for the same quarter of 2009. This $4 million decrease in gross operating margin was primarily due to a decrease in revenues from the Norco facility, which had benefited from higher realized NGL prices in the second quarter of 2009 due to hedging activities. This business was also adversely impacted by scheduled downtime in June 2010 at the Shoup NGL fractionator in South Texas as a result of construction activities to increase the capacity of this facility. Construction activities at Shoup were completed in June 2010. NGL fractionation volumes for the second quarter of 2010 were 463 MBPD compared to 459 MBPD for the second quarter of 2009. Higher volumes for the Norco and Promix fractionators were offset by an 11 MBPD decrease in volumes for the Shoup plant due to the construction activities.

Onshore Natural Gas Pipelines & Services - Enterprise's Onshore Natural Gas Pipelines & Services segment reported gross operating margin of $107 million for the second quarter of 2010, a $14 million decrease from the $121 million reported for the second quarter of 2009. Gross operating margin in the second quarter of 2010 includes $12 million of non-cash, mark-to-market losses associated with financial transactions for sales of natural gas in future periods. We expect substantially all of these non-cash, mark-to-market losses to be reversed in future periods upon physical delivery of the natural gas.

In aggregate, the partnership's Texas intrastate natural gas pipeline system; State Line and Fairplay natural gas gathering systems (which were acquired effective May 1, 2010); and natural gas gathering and treating facilities in the Piceance Basin accounted for a $19 million increase in gross operating margin. These systems reported a total increase in natural gas transportation volumes of 0.7 TBtud, of which 0.5 TBtud were attributable to the State Line and Fairplay systems.

The aforementioned increase in gross operating margin was partially offset by an aggregate decrease in gross operating margin of $8 million from the Val Verde, Jonah and San Juan natural gas gathering systems and Enterprise's natural gas storage business largely due to a 7 percent, or 0.3 TBtud, decrease in transportation volumes on these systems. In addition, the delay in the completion of the Trinity River Basin Lateral pipeline reduced gross operating margin by approximately $9 million for the second quarter of 2010 due to charges incurred for transportation capacity on a downstream pipeline in anticipation of natural gas volumes originating on the Trinity River Basin Lateral pipeline. The pipeline is expected to be in service by the end of July 2010.

Total onshore natural gas pipeline volumes increased to a record 11.4 TBtud in the second quarter of 2010 versus 10.7 TBtud in the same quarter of 2009.

Onshore Crude Oil Pipelines & Services - Gross operating margin for the second quarter of 2010 from the partnership's Onshore Crude Oil Pipelines & Services segment was $26 million compared to $42 million for the second quarter of 2009. This $16 million decrease was due to lower gross operating margin from crude oil marketing activities attributable to lower sales margins. The partnership's crude oil marketing business had higher sales margins in the second quarter of last year due in part from the settlement of forward sales transactions which benefited from a strong contango market for crude oil. Crude oil volumes decreased to 678 MBPD for the second quarter of 2010 from 750 MBPD for the second quarter of 2009 principally due to lower volumes on the Seaway crude oil pipeline.

Offshore Pipelines & Services - Gross operating margin for the Offshore Pipelines & Services segment was $83 million in the second quarter of 2010 compared to a loss of $1 million in the same quarter of 2009. Gross operating margin for the second quarter of 2010 includes $10 million of proceeds from insurance claims associated with hurricanes in prior years and $4 million of revenues from a tariff rate case settlement on our High Island Offshore System. The second quarter of 2009 includes charges of approximately $68 million associated with the termination of TOPS.

The Independence Hub platform and Trail pipeline reported aggregate gross operating margin of $44 million for the second quarter of 2010 compared to $56 million for the second quarter of 2009. Natural gas volumes on the Independence system decreased to 635 billion British thermal units per day ("BBtud") for the second quarter of 2010 from 891 BBtud for the second quarter of 2009 due to lower production volumes as the result of depletion and one large well watering out. Workover activities have generally been delayed as the result of the uncertainty caused by the federal offshore drilling moratorium. Total offshore natural gas pipeline volumes were 1.3 TBtud for the second quarter of 2010 compared to 1.5 TBtud for the second quarter of 2009.

Gross operating margin from Enterprise's offshore crude oil pipeline business increased to $26 million for the second quarter of 2010 from $14 million for the second quarter of 2009, excluding the charges associated with the termination of TOPS. The Shenzi pipeline, which commenced operations in April 2009, accounted for approximately $4 million of this increase. Substantially all of the partnership's offshore crude oil pipelines reported increases in gross operating margin and volumes. Total offshore oil pipeline volumes were 322 MBPD in the second quarter of 2010 versus 244 MBPD in the same quarter of 2009.

Most of the partnership's offshore oil pipelines, as well as its offshore natural gas pipelines and platforms, were either in limited service or out of service during the second quarter of 2009 due to volume disruptions caused by the effects of Hurricanes Gustav and Ike. Most of Enterprise's offshore assets returned to normal operations during the third quarter of 2009.

Petrochemical & Refined Product Services - Gross operating margin for the Petrochemical & Refined Products Services segment increased 65 percent to a record $158 million in the second quarter of 2010 from $96 million in the second quarter of 2009.

The partnership's propylene business reported gross operating margin of $68 million for the second quarter of 2010 compared to $23 million for the second quarter of 2009. This business benefitted from an 18 percent increase in propylene fractionation volumes to 79 MBPD and higher sales margins in the second quarter of 2010. Petrochemical pipeline volumes increased 26 percent to 122 MBPD during the second quarter of 2010 compared to 97 MBPD in the second quarter of 2009.

Enterprise's refined products pipelines and related services business reported gross operating margin of $31 million for the second quarter of 2010 compared to $30 million in the second quarter of 2009. The partnership's Port Arthur, Texas refined products terminal began full commercial operations in June 2010 and therefore only generated nominal gross operating margin in the second quarter of 2010. Pipeline volumes for the refined products pipeline business declined by 4 percent to 642 MBPD for the second quarter of 2010 compared to 669 MPBD for the second quarter of 2009.

Enterprise's butane isomerization business reported gross operating margin of $26 million for the second quarter of 2010 compared to $19 million for the same quarter of 2009 principally due to higher revenues from the sale of by-products. Isomerization volumes during the second quarter of 2010 were essentially flat with last year.

Enterprise's marine transportation and other service businesses reported gross operating margin of $22 million for the second quarter of 2010 compared to $17 million for the second quarter of 2009.

Gross operating margin for Enterprise's octane enhancement business increased to $11 million for the second quarter of 2010 compared to $7 million for the second quarter of last year due to higher sales margins from motor gasoline additives produced for export purposes only and revenues from sales of by-products. Octane enhancement production was 13 MBPD for the second quarter of 2010 compared to 10 MBPD for the same quarter of 2009.

Capitalization

Total debt principal outstanding at June 30, 2010 was approximately $12.6 billion, including $1.5 billion of junior subordinated notes to which the nationally recognized debt rating agencies ascribe partial equity credit. Enterprise's consolidated debt at June 30, 2010 also included $537 million of debt of Duncan Energy Partners L.P., for which Enterprise does not have the payment obligation. During the second quarter of 2010, Enterprise received total proceeds of $553 million from the issuance of approximately 15.8 million common units through a public offering in April and the partnership's distribution reinvestment plan in May. Also during the second quarter of 2010, the partnership received aggregate net proceeds of approximately $2.0 billion from the issuance of 5-year, 10-year and 30-year senior notes. At June 30, 2010, Enterprise had liquidity of approximately $2.3 billion, which included availability under Enterprise's credit facilities and unrestricted cash.

Total capital spending in the second quarter of 2010, net of contributions in aid of construction costs, was approximately $1.6 billion, which includes the $1.2 billion acquisition of natural gas gathering assets in the Haynesville Shale region of North Louisiana and East Texas from subsidiaries M2 Midstream LLC and $73 million of sustaining capital expenditures.

Interest expense for the second quarter of 2010 was $169 million on an average debt balance of $11.9 billion, compared to interest expense of $159 million in the second quarter of 2009, which had an average debt balance of $12.0 billion. The increase in interest expense was primarily due to higher average interest rates during the second quarter of 2010.


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