Enterprise Reports 22% Increase in Net Income for First Quarter 2006
Enterprise Products Partners L.P. (NYSE: EPD) announced its financial results for the three months ended March 31, 2006. The partnership reported a 22% increase in net income for the first quarter of 2006 to a record $134 million, or $0.28 per unit on a fully diluted basis, from $109 million, or $0.25 per unit on a fully diluted basis, in the first quarter of 2005.
Distributable cash flow for the first quarter of 2006 was $218 million compared to $251 million for the first quarter of 2005, which included $42 million from the proceeds from sale of assets. For the fifth consecutive quarter, the partnership posted distributable cash flow in excess of $210 million. On April 17, 2006, Enterprise's board of directors approved an increase in the partnership's quarterly cash distribution rate from $0.4375 per unit to $0.445 per unit with respect to the first quarter of 2006. This represents a 9% increase over the $0.41 per unit rate that was paid with respect to the first quarter of 2005. Distributable cash flow for the first quarter of 2006 provided 1.1 times coverage of the cash distribution to the limited partners. Distributable cash flow is a non-GAAP financial measure that is defined and reconciled later in this press release to its most directly comparable GAAP financial measure, cash provided by operating activities.
Revenue for the first quarter of 2006 increased 27%, to $3.3 billion compared to $2.6 billion for the first quarter of 2005. Operating income for the first quarter of 2006 increased by 17% to $194 million compared to $165 million for the first quarter of 2005. Gross operating margin increased by 14% to a record $313 million for the first quarter of 2006 from $275 million for the same quarter in 2005. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the first quarter of 2006 increased by 13% to a record $301 million from $266 million for the first quarter of 2005. Gross operating margin and EBITDA are non-GAAP financial measures that are defined and reconciled, later in this press release, to their most directly comparable GAAP financial measure.
"Enterprise delivered a record quarter to begin 2006 with strong contributions from our NGL pipelines and services, onshore natural gas pipelines and storage and petrochemical services segments," said Robert G. Phillips, President and Chief Executive Officer of Enterprise. "While our offshore assets and some of our Gulf Coast plants continued to be impacted during the quarter by reduced throughput from last year's hurricanes, many of Enterprise's onshore assets benefited from higher volumes and stronger margins."
"Our NGL pipeline business continued to be a solid contributor during the quarter due to record export volume, increased storage activity and our increased ownership interest in the Dixie pipeline. We were also pleased with the performance of our onshore natural gas pipeline business which reported a 22% increase in gross operating margin from the first quarter of 2005 on stronger transportation fees and higher volumes attributable to increased drilling activity in the basins in which we operate. Highlighting that sector's gross operating margin increase: the Texas intrastate pipeline system was up 22%, the San Juan gathering system was up 13% and the Permian Basin gathering systems were up 36% compared to the first quarter of last year," continued Phillips.
"I am also pleased to report that we continue to make substantial progress on our organic growth projects. The Constitution oil and gas pipelines were completed and placed in service ahead of schedule during the first quarter. The San Juan optimization project and the 15,000 barrel per day expansion of the partnership's NGL fractionator in Mont Belvieu were also completed since the first of the year. The Independence Hub and Trail project was expanded to one billion cubic feet per day during the quarter due to additional offshore discoveries in the eastern Gulf of Mexico and the project is on budget and on schedule with an expected in service date in the first quarter of 2007. In addition, we announced long-term agreements to construct new processing plants in the fast growing Jonah/Pinedale fields and Piceance basin that extend Enterprise's integrated NGL value chain in the Rocky Mountains. We also announced the expansion of our propylene splitter at the Mont Belvieu complex to support increased demand for these services from our petrochemical customers. These projects comprise the bulk of our capital budget for 2006 and provide visibility to earnings growth for our partnership and should support future distribution increases," concluded Phillips.
Review of Segment Performance
NGL Pipelines & Services -- Gross operating margin for this segment increased by 12% to $171 million in the first quarter of 2006 from $153 million in the same quarter in 2005.
This increase was primarily due to the partnership's NGL pipeline and storage business, which had a 35% increase in gross operating margin to $70 million in the first quarter of 2006 compared to $52 million for the same quarter of 2005. The increase was largely attributable to record volumes through our NGL export terminal on the Houston Ship Channel; increased volume on the Lou-Tex NGL pipeline; higher volumes and fees at our NGL storage facilities including the assets acquired from Ferrellgas in 2005; and consolidating the Dixie pipeline for a full quarter as a result of our acquiring additional interests in the pipeline company during the first quarter of 2005. Pipeline volumes for the first quarter of 2006 were 1,421,000 barrels per day ("BPD") compared to 1,410,000 BPD in the first quarter of 2005.
Enterprise's natural gas processing and related marketing business recorded gross operating margin of $85 million in the first quarter of 2006 compared to $84 million in the first quarter of 2005. Equity NGL production for the first quarter of 2006 was 58,000 BPD compared to 85,000 BPD in the first quarter of last year. Fee-based natural gas processing volumes decreased to 1.8 billion cubic feet per day ("Bcfd") from 2.0 Bcfd in the first quarter of 2005. The decrease in volumes was primarily due to the lingering effects of the hurricanes on offshore production. Gross operating margin for the first quarter of 2006 included a $4 million recovery from business interruption insurance related to Hurricane Ivan.
Gross operating margin from the NGL fractionation business decreased slightly to $16 million for the first quarter of 2006 from $18 million in the first quarter of 2005. NGL fractionation volumes decreased by 83,000 BPD to 255,000 BPD principally as a result of our Norco, Louisiana facility being idle for most of the first quarter of 2006 as a result of a decrease in NGL volumes available for fractionation due to the effects of Hurricanes Katrina and Rita. The decline in gross operating margin was attributable to this decrease in volumes which more than offset the benefit from a $4 million recovery from business interruption insurance with respect to Hurricane Ivan.
Enterprise's Norco facility returned to service at the end of March. Thus far in the second quarter of 2006, our Louisiana fractionators have been operating at approximately 166,000 BPD of aggregate gross production which exceeds pre-storm levels by 20%, or 28,000 BPD.
Onshore Natural Gas Pipelines & Services -- Enterprise's onshore natural gas pipeline and storage business reported strong performance from all of its major assets. Gross operating margin in the first quarter of 2006 increased by 22% to $97 million from $79 million in the first quarter of 2005. Enterprise's Texas Intrastate pipelines experienced a 5% increase in volumes to 3.5 trillion British thermal units per day ("TBtud") on continued drilling in the Barnett Shale and in South Texas. The San Juan basin gathering system completed a record 109 new well connects during the first quarter and benefited from higher margins on its percentage of index gathering agreements. The Permian basin gathering and Acadian pipeline systems each turned in a strong quarter based on higher volumes. Total onshore natural gas pipeline volumes increased to approximately 6.1 TBtud during the first quarter of 2006 compared to 5.7 TBtud for the same quarter of 2005.
Offshore Pipelines & Services -- Gross operating margin for the Offshore Pipelines & Services segment was $17 million in the first quarter of 2006 compared to $23 million in the first quarter of 2005. Gross operating margin for the first quarter of 2006 included a $2 million recovery on business interruption insurance related to Hurricane Ivan. Offshore natural gas pipeline volumes were down 20% to 1.5 TBtud and offshore crude oil transportation volumes were down 10% to 113,000 BPD as a result of the effects of Hurricanes Katrina and Rita. Importantly, the Constitution oil and gas pipelines were placed in service in February and are currently transporting approximately 30,000 BPD and 35 billion British thermal units per day. Additionally, the Phoenix gas gathering system, which had been shut in since last year due to damage on a downstream pipeline, was returned to service in April and should return to pre-storm volume levels in the second quarter 2006.
Petrochemical Services -- Gross operating margin in the first quarter of 2006 increased 42% to $28 million compared to $19 million for the same quarter of 2005.
The partnership's propylene fractionation and pipeline business earned $21 million of gross operating margin in the first quarter of 2006 versus $15 million in the first quarter of 2005, an increase of $6 million or 38%. Enterprise's butane isomerization business reported a 34% increase in gross operating margin to $18 million in the first quarter of the current year compared to $14 million in the first quarter of 2005 as a result of a 27% increase in volume.
Enterprise's octane enhancement facility was idle for most of the first quarter of 2006 for its annual turnaround and maintenance program, which is typically scheduled during quarters when demand for motor gasoline and additives is not at peak levels. This business recorded a loss in gross operating margin of approximately $11 million compared to a loss of $9 million for the first quarter of 2005.
Capitalization -- Total debt outstanding at March 31, 2006 was
approximately $4.4 billion. The partnership's debt to total
capitalization decreased from 45.5% at the end of 2005 to 41.6% on
March 31, 2006. Total capital spending in the first quarter of 2006
was $305 million, which includes $30 million of sustaining capital
expenditures. At the end of the first quarter of 2006, Enterprise had
total liquidity of approximately $1.2 billion, which includes
availability under the partnership's $1.25 billion credit facility and
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