Growth project spending to be cut next two years
Company awaiting 'price signal' that spurs output
Houston — Enterprise Products Partners' second-quarter profit slid as declines in natural gas and crude pipeline volumes and reduced activity at processing plants -- due to producer shut-ins and weak NGL prices -- caused revenue to plunge.
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Register NowThe company is cutting its combined spending on growth projects in 2021 and 2022 by a total of $700 million from its previous expectations. It is also talking seriously with a joint venture partner about helping it fund existing build-out plans, executives said July 29 during an investor conference call.
The cautious approach reflects uncertainty in the midstream sector about the future trajectory of supply and demand fundamentals amid the coronavirus pandemic, geopolitical tensions that could disrupt market flows and the November US presidential election that could lead to trade and tax policy changes.
"We're discussing some JVs with some of our largest projects, but I wouldn't say we're highly engaged with more than one," co-CEO Jim Teague said on the call. "But we are highly engaged with one."
Teague declined to elaborate.
Just 18 months ago, the operator of gathering and processing facilities, pipelines, storage and import and export terminals across oil, gas, NGLs and petrochemicals touted enthusiastically its plans to get bigger, believing that greater scale would enhance its market position and generate higher profits and investor returns.Then the coronavirus started to spread globally in January.
Enterprise still plans to get bigger – it has $6.6 billion in projects currently in its construction queue, including in Texas an 11th NGL fractionator and a new segment of a crude pipeline that are expected to begin initial service by the end of September.
What's different now is the breadth of the growth and how much risk it is comfortable shouldering on its own, as it believes that the pace and scope of the reopening of energy markets as the virus eases in parts of the world is uncertain and may extend well into 2021.
It still expects to spend $2.5-$3 billion on growth capital projects this year. For 2021 and 2022, it expects growth capital investments will be reduced from previous guidance to approximately $2.3 billion and $1 billion, respectively.
Preferred joint venture partners, meanwhile, would ideally "bring more than money," Teague said. "They've got to bring throughput or offtake typically.".
For the April-June quarter, Enterprise reported net income attributable to limited partners of $1.03 billion, or 47 cents/share, a 15% drop from the $1.21 billion, or 55 cents/share, in the second quarter of 2019. Revenue in the latest quarter fell over 30% to $5.75 billion from $8.28 billion in the year-ago period.
The company would consider a strategic acquisition if it complemented an existing business, but has not seen any opportunities over the last several months that would be compelling, executives said during the call. It is more focused on executing its existing assets, they said.
MLP and taxes
There also are no current plans to change its master limited partnership structure, amid its concerns that depending on who wins the upcoming US presidential election tax obligations and the cost of energy infrastructure could increase, executives said.
Looking ahead, Enterprise is optimistic there is a recovery on the horizon.
"I think you're going to get a price signal next year on hydrocarbons that turns some things back on," Teague said.
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