Enterprise Products Partners Q1 2024 Earnings Call Transcript

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April 30, 2024

There are 17 speakers on the call.

Operator

Thank you for standing by, and welcome to the Enterprise Products Partners First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Libby Strait, Senior Director of Investor Relations. Please go ahead.

Speaker 1

Good morning. Welcome to the Enterprise Products Partners conference call to discuss Q1 2024 earnings. Our speakers today will be Co Chief Executive Officers of Enterprise's General Partner, Jim Teague and Randy Fowler. Other members of our senior management team are also in attendance for the call today. During this call, we will make forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 based on the beliefs of the company as well as assumptions made by and information currently available to Enterprise's management team.

Speaker 1

Although management believes that the expectations reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward looking statements made during this call. With that, I'll turn it over to Jim.

Speaker 2

Thank you, Levi.

Speaker 3

We have a war in Europe. We have a war in the Middle East. We have student mobs occupying elite university campuses. A former president being tried for crimes in courts up and down the East Coast, chaos reigns. In many ways, what's going on today reminds me of the 1960s.

Speaker 3

We had a war in Asia called the Vietnam War. We had student anti war demonstrators occupying campuses throughout the country. And while no president was on trial, one was chased from running for a second term. And on top of all that now, like in 1968, we find that the DNC will hold its convention in Chicago. For those of you too young to know what that means, I suggest you Google 1968 Chicago Convention.

Speaker 3

But with all this chaos, there is a constant today that should bring calm to investors' concerns in this volatile world. Enterprise continues to deliver month after month, quarter after quarter and year after year and Q1 was no exception. Our total gross operating margin for the quarter, Q1 was $2,500,000,000 a 7% increase compared to the Q1 of last year. Earnings growth for the Q1 was primarily driven by contributions from new assets placed into service during the second half of last year, along with a 17% increase in net marine terminal volumes attributable to continued strength in global demand for U. S.

Speaker 3

Energy and higher sales volumes and margins in our octane enhancement business. Our system transported 12,300,000 barrels a day of crude oil equivalent, that being NGLs, crude oils crude oil, petrochemicals, refined products and natural gas. We generated $1,900,000,000 in DCF during the quarter, providing a 1.7x coverage was supported a 5% increase in cash distributions to partners compared to the same quarter last year. We retained $786,000,000 of DCF. Randy, you're going to get into more color on all this, right?

Speaker 3

Right. During the quarter, we expanded our Permian natural gas processing infrastructure with the start of our Leonidas plant in the Midland Basin and our Mentone III plant in the Delaware Basin. Each of these plants has capacity to process more than 300,000,000 cubic feet a day of natural gas and extract over 40,000 barrels a day of NGLs. We currently have 3 additional 300,000,000 a day plants under construction, 2 in the Delaware and 1 in the Midland Basin, along with our Bahia NGL pipeline and Frac 14, which is really our 13th fractionator, but we're not going to call it 13, we call it 14. Our plants and the systems that support them are essentially full on the 1st day of service.

Speaker 3

With the completion of the 3 processing plants under construction, we will have a total of 19 Permian processing plants capable of producing 675,000 barrels a day of NGLs, beating our NGL systems, including one of the world's largest NGL export capacities. We also began service on Phase 1 of our Texas Western Products Pipeline System in March, successfully connecting Gulf Coast refined products to end markets in the Permian Basin with additional Phase II destinations in the Albuquerque and Grand Junction markets expected in the second and early third quarters. At the beginning of the month, we received the deepwater port license for our spot project. This is one of the most significant milestones to date in the development of SPOT. We put out a press release on April 9 discussing the project and highlighting the accomplishment of the enterprise team that worked tirelessly for over 5 years tirelessly for over 5 years to obtain the license.

Speaker 3

I think Spot is going to be a valuable and highly strategic addition to our asset base as we continue with commercialization. Last week, the EIA reported that the U. S. Exported a record 12.1 1,000,000 barrels a day of liquids, that being crude oil, refined products and natural gas liquids to a world hungry for our reliable and plentiful resources that's priced by a free market. To put that in perspective, the number was $3,600,000 in 2014 and less than $2,000,000 in 2010.

Speaker 3

Demand for growing U. S. Liquids has been and will continue to be primarily in emerging markets. Enterprise will continue to play a key role. We export around 70,000,000 barrels a month of liquids and have an initiative to reach 100,000,000 barrels a month, which does not include spot.

Speaker 3

We're a significant player in the export market and we expect our growth is going to continue to grow. Randy?

Speaker 2

Okay. Thank you, Jim. Good morning, everyone. Starting with 1st quarter income segment items, net income attributable to common unitholders for the Q1 of 2024 increased 5% to $1,500,000,000 or $0.66 per common unit on a fully diluted basis compared to $1,400,000,000 or $0.63 per common unit for the Q1 of 2023. Turning to cash flow.

Speaker 2

Adjusted cash flow from operations, which is cash flow from operating activities before changes in working capital, increased 6% to $2,100,000,000 for the Q1 of 2024 compared to $2,000,000,000 for the Q1 of last year. We declared a distribution of $0.515 per common unit for the Q1 of 2024. As Jim mentioned, this is a 5.1% increase over the distribution declared with regard to the Q1 of 2023. The distribution will be paid May 14 to common unitholders of record as of the close of business today. In the Q1, the partnership purchased approximately 1,400,000 common units off the open market for $40,000,000 Total purchases for the 12 months ending March 31 were $211,000,000 or approximately 8,000,000 enterprise common units, bringing total purchases under our buyback program to approximately $960,000,000 In addition to buybacks, our distribution reinvestment plan and employee unit purchase plan purchased a combined 6,500,000 common units on the open market for $172,000,000 during the last 12 months, including 1,600,000 common units on the open market for $43,000,000 during the Q1 of 2024.

Speaker 2

For the 12 months ended March 31, 2024, Enterprise paid out approximately $4,400,000,000 in distributions to limited partners, combined with the $211,000,000 of common unit repurchases across the same time period, Enterprise's payout ratio of adjusted cash flow from operations was 56% for that 12 month period. Total capital investments in the Q1 were $1,100,000,000 which included $875,000,000 for growth capital projects and $180,000,000 of sustaining CapEx. We expect growth capital expenditures for 2024 2025 to be in the range of 3.25 dollars to $3,750,000,000 We continue to estimate 2024 sustaining capital expenditures to be approximately $550,000,000 which includes planned turnarounds at both of our PDH plants, our IBDH facility and high purity isobutylene facility. As previously mentioned, these scheduled turnarounds typically occur every 3 to 4 years. At this time, we expect the PDH turnaround to be completed in May 2024.

Speaker 2

We plan to begin addressing the issues on the 4th reactor within PDH2 in June. Our total debt principal outstanding was approximately $29,700,000,000 as of March 31, 2024. Assuming the final maturity date for our hybrids, the weighted average life of our debt portfolio is approximately 19 years. Our weighted average cost of debt is 4.7%. At March 31, approximately 98% of our debt was fixed rate.

Speaker 2

Our consolidated liquidity was approximately $4,500,000,000 at the end of the Q1, including availability under our credit facilities and unrestricted cash on hand. Our adjusted EBITDA for the Q1 was $2,500,000,000 $9,500,000,000 for the trailing 12 months. As of March 31, 2024, our consolidated leverage ratio was 3.0x on a net basis after adjusting debt for the partial equity treatment of our hybrid debt and reducing the debt outstanding by the partnership's unrestricted cash on hand. As a reminder, our leverage target remains 3.0 times plus or minus 0.25 times. And with that, Libby, I think we can open it up for questions.

Speaker 1

Thank you. Operator, we are ready to open the call for questions from our participants. If you could please remind them of instructions to ask a question.

Operator

Our first question comes from the line of Theresa Chen from Barclays. Your question please.

Speaker 4

Good morning. Thank you for taking my questions. First, congratulations on obtaining the Deepwater port license for SPOT. I'm sure that was a labor of love over the past 5 years. Can you provide us an update on the commercialization progress since you've received the license earlier this month?

Speaker 4

And also, can you help us think about how much CapEx would the project require and over what period that would be

Speaker 3

spent? Yes, I'll talk to the CapEx. First of all, it's not what was in the Reuters article by a long shot. And we typically don't share with people what our CapEx is. I'll turn it over to Brent to answer the other question.

Speaker 5

I mean the commercialization, Trey said, it's still ongoing. I'd say for the most part, it's positive. We're spending a lot of time on the road. We expect to have 2 contracts by the end of, call it, next month. And then we're in ongoing discussions with other counterparties too to commercialize that.

Speaker 5

But the mindset is we're not going to move forward on that project until we have the contracts to support that project.

Speaker 4

Thank you. And then turning activities, can you provide an update on the status of the Texas Western products project so far after the initial phase and began service? And what are the key gating factors from here until Phase 2 is brought online? And what should we look for?

Speaker 5

Yes. This is Tug Hanley speaking. I'll turn it over to Justin on the future activities. But as current status goes, we have 2 terminals online in West Texas. We just loaded over 50 trucks yesterday.

Speaker 5

It seems like every single day we're setting new record on volumes loaded. And as far as the margins we're getting, those have met our expectations or they are currently exceeding them. And then you want to talk about, Justin, Albuquerque on the line?

Speaker 6

Yes, I'd say Theresa, this is

Speaker 7

Justin Kleier. Just thinking about Phase 2 being Albuquerque and Grand Junction as Jim had said in his comments, we feel good. We're on the verge of commissioning Albuquerque as we speak. So in the Q2 rolling into early Q3 to get that Phase 2 seems to be pretty good timing.

Speaker 4

Thank you.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Christian Richardson from Scotiabank. Your question please.

Speaker 8

Hi, good morning guys. Could you talk about a little bit about just the projects you added in the quarter on the midstream side? You note new dedications, are these with existing customers or are these new customers, is this primarily in the Delaware versus the Midland? And then should this support plants that are already currently under construction? Or is this gathering projects that could support future new plant sanctions?

Speaker 9

This is Natalie Gayden. The new dedications at the gathering expansions in the Delaware and in Midland are supported by new acreage dedications, some existing customers, some new customers. Those gathering expansions feed the new plants that we've built. This morning, I was looking we're over 91% of our plant capacity full, so a combo of everything.

Speaker 8

That's helpful. Thanks, Natalie. And just thinking about on the crude side, you saw Seminole move back into NGL service. Just thinking about the crude volumes in the quarter, we're just seeing increased utilization on the existing infrastructure there. Can you talk about maybe the use of DRA to sort of squeeze better utilization out of your existing plants with Seminole lines with Seminole moving into new JLs?

Speaker 10

Yes. Tristan, this is Jay Baney. Yes, I mean, we do a combination and optimization really both for DRA and Power. With 2 going out of service, you saw a modest increase in variable cost, but it was near negligible just in the optimization.

Speaker 8

Appreciate it, Jay. Thank you guys very much.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Spiro Dounis from Citi. Your question please.

Speaker 11

Thanks, operator. Good morning, team. Maybe if you could just go back to exports. Jim, once you talked about getting to that 100,000,000 barrels a month without spot, I guess I'm just curious if you could just maybe dive into that a little bit more and provide a little more color on how you think you can do that. And now with spot potentially moving forward, curious where that goal goes from here, especially when you consider the ability to free up some of that LPG capacity as well?

Speaker 3

Spiro, I had a dream one night that we got to 100,000,000 barrels, so I made it an initiative.

Speaker 9

If you're going

Speaker 3

to get to 100,000,000 barrels, you're going to get it because you've got a great supply position. So some of the things Natalie is talking about is building your supply position, and we know what it takes to get to that number and what we need to do from a supply perspective. And I don't think, Zach, I don't think we have to spend a heck of a lot of money on our ship channel or any of our docks in order to handle that, Bob?

Speaker 5

Not over what we've already committed to.

Speaker 3

So it's all about supply, Spiro.

Speaker 11

Got it. Appreciate that. Second question, maybe just going to some of the prices we're seeing on Waha. Obviously, a lot of volatility there recently and into the Q2. It looks like maybe you got some benefit from those negative prices in the Q1.

Speaker 11

But I imagine at this rate, 2nd quarter impact could be even bigger. Maybe just remind us again, some of the exposure you've got there, enough capacity to benefit from that?

Speaker 5

Yes. This is Tuck Hanley. So it's puts and takes. So from the negative gas price perspective, we are seeing lower prices obviously for our equity volumes. However, on the positives of the lower gas price, we're seeing wider margins on C2 to gas.

Speaker 5

So that's higher key full margins for us. They're over $0.22 a gallon. And that means a couple of things for us, specifically our ethane recoveries across the systems are seeing record pipeline volumes. And then on the gas transport position, we have around $375,000,000 a day that we can participate in bringing Waha down to the Gulf Coast, which is a premium market versus the Waha negative price.

Speaker 11

Great. I'll leave it there. Helpful as always. Thanks, team.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Keith Stanley from Wolfe Research. Your question please.

Speaker 7

Hi, good morning. Just a follow-up on spot. So you said you hope to have 2 contracts soon working on others. What's the soonest you think you can get to an FID kind of a full case and a base case on that project? Just a sense of how long it could take?

Speaker 5

Hey, Keith, it's Brent. I think we'd like to target before the end of this year to go forward on that project.

Speaker 12

Okay. Okay. Thank you.

Speaker 7

Second question, the stocks lagged a bit recently. Your yield plus growth sort of proposition is very high. How are you thinking about the return on stock buybacks versus the returns you get on growth investments? Is that spread narrowing a lot in your eyes? Or are growth projects still a lot more accretive than what you can do with buybacks?

Speaker 2

Keith, over the last 3 or 4 years, I mean, the stock prices ebbed and flowed just with the overall volatility in the energy sector in the space. So I mean, it comes and goes. I think we try to keep all the above approach. And when we see it attractive to do buybacks, we do that, but it's been measured, call it $200,000,000 $250,000,000 a year. And I expect it to stay in that area.

Speaker 2

Our growth CapEx, our projects that were coming in are attractive returns on capital that actually grow our business and serve our customers. So yes, I mean, we take a look at it, but you don't make allocation of capital issue allocation of capital decisions day by day depending on where the stock price is. So, we've got a longer term view than that.

Speaker 12

Thank you.

Operator

Thank you. We'll move it for our next question. And our next question comes from the line of Zack Van Averitt from TPH and Company. Your question please.

Speaker 13

Hey, all. Thanks for taking my question. Starting on liquids marketing, really propane specifically, we've seen domestic storage and production based on the weekly data come in pretty high.

Speaker 12

I was just curious on

Speaker 13

your expectations for propane side and do you see this widening the spreads to the international markets? And then on that, can you just remind us of the sensitivity and exposure you guys have to that spread?

Speaker 5

Yes, it's Todd Hanley speaking. I'll just comment on the international market. So it's the barrels here in the U. S. Have to price the clear across the water.

Speaker 5

So we are seeing lower freight prices, which are leading to higher spot export opportunities for us. We're seeing some of those opportunities in the low single digit numbers materialize. So that's been a benefit to us on that aspect. I think overall, and Zach, it's Brent. Propane is going to be constrained here domestically until new export capacity comes online.

Speaker 5

And so call that next year, you could probably see storage value start whiting out because that's the only place you can go at this point. I think it's probably good for some of our other assets or our customers around PDH. But once you get out till next year and the years beyond, we think the appetite for LPGs is there across the world. We think freight is going to be there. So at some point in time, it's going to come back to the U.

Speaker 5

S. Producer and for them to catch up to line with the export capacity of the freight and the overall global demand.

Speaker 13

Got it. That makes sense. Appreciate that. And then moving to Wink to Webster, I saw a note out that you guys might have some downtime at the beginning of Q2. I was curious, 1, if you can comment on that and 2, if you can move those volumes to another asset like Midland to Echo 1 and just the overall impact there?

Speaker 14

Yes. Hey, Zach, this is Jay.

Speaker 10

Yes, so we've went out this past week to notify our shippers of downtime in June, starting the first. It's estimated around 10 days. And look, until we get actual nominations come in, call it mid May, it's kind of hard to figure out how that's going to impact our customer base.

Speaker 12

Okay, perfect. That's all I have. Thanks.

Operator

Thank you. One moment for our next question. And our next question comes from the line of John McCain from Goldman Sachs. Your question please.

Speaker 15

Hey, good morning. Thanks for the time. I wanted to maybe just stay in the Permian. I'd be curious to get an update from you guys on how activity levels are trending so far this year versus your base case and fully understand that the producers are not making decisions based on the gas price. But would just be curious if you're seeing this weak Waha and kind of gas takeaway issues in the near term affect overall activity levels?

Speaker 15

Thanks.

Speaker 6

This is Tony. Yes, essentially you've seen no effect from the weak natural gas prices. If you and we show the slide often so that people understand it. If you look at what drives the economics of the producers in the Permian, it's not natural gas. And you're what we've seen in natural gas prices is not going to cause people to shut in or even throttle back oil related natural gas at this point.

Speaker 6

We haven't seen it. I guess proof is a little bit in the pudding. If you go and look at everybody has different rig counts, but if you go and look at rig counts in the Permian since the first of the year, they're steady as they can be. Actually, same can be said for the Eagle Ford. You see rig counts down in the Haynesville and you see them down somewhat in Appalachia, but not in your oily basins.

Speaker 15

That's fair. Maybe just a few pet chems, octane was pretty strong. Maybe just give us a quick read on how you'd expect that to kind of roll out the rest of the year And maybe on the other side, where we could expect kind of the PDH contributions to unfold as well? Thanks.

Speaker 14

Yes. John, this is Chris, Dana. On the Octane enhancement side, we benefited probably 80% of the improved performance was due to volumes and higher higher volumes and higher fees. And then we also had a favorable hedge performance. And I guess looking forward, if you look at the forward curve for normal RBOB, it shows pretty steady.

Speaker 14

So we have, at least for the Q2, a $1.80 spread. And just a reminder for the biggest contributor for octane enhancement is our MTBE, which is made up of normal RBOB and what we call uplift, which is just the market price and really the difference between the normal RBOB spread and the end market price. For your second question on PDH, we're expecting when PDH 1 and then with the return of PDH 2 after our outage in June that both of those assets are contributing back to their full amounts.

Speaker 15

I appreciate that. Thank you.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Neil Mitra from Bank of America. Your question please.

Speaker 12

Hi, good morning. Thanks for taking my questions. Wanted to ask about the activity within the first quarter. I think it was kind of universally accepted in the Permian, that the Q1 would have a little bit of a lag versus the Q4 of 2023. Just wanted to hear your insights of what you saw in terms of weather activity coming back and if you could kind of delineate where you're seeing some hotspots in production within the Permian and where you're seeing some lagging versus your initial expectations?

Speaker 5

This is Brent. Relative to our Q1, there was definitely an impact because of weather in the Midland Basin processing side. Our Delaware processing plants held up very well. On the Midland side, we had some downtime and it probably extended Graham for 10 days at some point. But that's the reason there's probably an effect on volumes.

Speaker 5

But to Natalie's point, in terms of what we see as we go forward, and we have a morning supply meeting that you guys are well aware of, it's routine for every day that Natalie comes in to report our processing volumes. That's up every single day.

Speaker 12

So is it fair to say that there's been a lot of flush production in kind of around the April timeframe after the Q1?

Speaker 5

Natalie, I mean, we saw the increase, our big jump on our side once our new plants came up.

Speaker 9

Yes. Once our new plants came up, we had some producers that, as you know, don't have acreage dedications, rather they just swing from we won market share. So we for example, when Min Ton two came up, we were immediately full. So I don't know if I call it flush production from being down after the winter storm rather than just continue on pace coming back up after the cold weather event.

Speaker 12

Got it. And if I could sneak one more in there. It seemed like the PGP, RGP spreads were especially strong in the Q1. I was wondering how that contributed to the Q1 results and if you see that as an ongoing trend for the rest of the year.

Speaker 14

This is Chris again. The RGP, PGP spreads were wide for the Q1. And you probably saw in the write up, we had some operational issues on both our PDH and our splitter. So there were some puts and takes there. And again, I think looking forward, we see the contribution from our PDH plants running that's going to help our overall margin.

Speaker 12

Okay, great. Thank you.

Speaker 1

Operator, we have time for one more question.

Operator

Certainly. One moment then for our final question. And our final question for today comes from the line of Neal Dingmann from Truist Securities. Your question please.

Speaker 16

Good morning. Thanks for the time. My guys just my question is on future capital allocation. I'm just wondering, you all boosted the, it looks like 2025 CapEx a bit based on opportunities out there. I'm just wondering, do you all have when you look at future years, let's just consider 2025 sort of a bogey or level for both shareholder return and projects, Just wondering how we should think about the balance between the 2 as you start looking at 2025 and 26?

Speaker 2

Yes. Hey, Neil. Good morning.

Speaker 8

Good morning,

Speaker 2

Brian. What we had talked about at Analyst Day here a few weeks ago was really from a combination of distributions and buybacks of sort of operating in that 55% to 60% of adjusted cash flow from operations. We've sort of been in that zone since 2021 and that's sort of what we foresee here for the next few years as well. As far as organic growth CapEx, again, seeing a lot of opportunities in the Permian and also what that the downstream benefits that come with that increased supply that goes through our value chain. And now with getting the license for spot, we'll be hustling to come in and get it contracted.

Speaker 2

So I think we still come back with a bogey of what we put out in 2026, and that's early, is $2,000,000,000 $2,500,000,000 of which only $800,000,000 of that is currently approved projects. So we've got some room to fill that up, including coming in and with spot, we're successful in getting that underwritten. Spot is really a 3 year construction cycle on that. And anyway, I think that would help come in and address that $2,000,000,000 $2,500,000,000 organic growth CapEx.

Speaker 16

No, that makes sense. And just quick follow-up, I won't keep it just on the buybacks. Just Randy, your thoughts on, is that sort of as overall just earnings and cash flow keep ramping up, just thoughts on would you do anything different with the buybacks or how that sort

Speaker 6

of factors in?

Speaker 2

Yes. I think we'll have more flexibility on buybacks. And again, we look to be opportunistic with it. So I mean, you've seen us do $200,000,000 or $300,000,000 here over the last few years. I mean, if there was a market dislocation, we've got 2025, we're looking at growth CapEx in the $3,250,000,000 to $3,750,000,000 range.

Speaker 2

I think once you get back out to 2026, 2027 and if we're in a more of what I would say normalized CapEx range $2,000,000,000 $2,500,000,000 then we'll have a lot more flexibility to do buyback then as well.

Speaker 16

Perfect. Thanks for the time, Randy.

Operator

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Libby Strait for any further remarks.

Speaker 1

Thank you everyone for joining us today. That concludes our remarks. Have a good day.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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Earnings Conference Call
Enterprise Products Partners Q1 2024
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