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Enterprise Products Partners LP's Growth Engine Is Just Getting Revved Up

By Matthew DiLallo - Sep 19, 2018 at 2:30PM

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The midstream MLP has delivered incredible growth over the past few years, and it has plenty of fuel left in the tank.

Enterprise Products Partners ( EPD -0.47% ) has delivered outstanding results so far in 2018. Through the first half of the year, distributable cash flow has rocketed nearly 30% to more than $2.8 billion. Fueling the company's growth has been the $5.3 billion of expansion projects it has placed into service over the last 12 months, as well as the improvements in the oil market.

However, that's only the beginning of good things to come for one of the country's largest master limited partnerships (MLPs). Not only does Enterprise have a large pipeline of additional expansion projects under construction, but it has a growing list of them under development. Those future additions set the company up for high-octane growth for years to come.

An uncovered pipeline construction site with sand around it.

Image source: Getty Images.

Set to continue growing in the near term

Enterprise will continue to benefit from the $5.3 billion of projects it completed over the past year because several of them recently entered service. The company just started up a large propane-consuming petrochemical plant in April and finished $1.1 billion of expansions last quarter, including the Orla I natural gas processing plant and a ninth natural gas liquids (NGLs) fractionator in Mont Belvieu, which will separate mixed NGLs into propane, butane, and ethane.

At the same time that Enterprise continues benefiting from recently completed projects, the company will see a steady boost from new projects as they enter service over the next couple of years. The MLP currently has $5.7 billion of expansions under construction, with $1.1 billion on pace to start up by year-end, including oil gathering pipelines in the fast-growing Permian Basin, a second phase of the Aegis NGL pipeline, and Orla II. Several projects will follow those expansions, including the Shin Oak NGL pipeline and the Orla III gas plant -- which should start up by the middle of next year -- and another large petrochemical complex, as well as an ethylene export terminal that it should finish by year-end. Meanwhile, Enterprise is building a 10th fractionator in Mont Belvieu, which should start up in early 2020. These projects will provide the company with visible cash flow growth for the next several years.

A long list of potential projects to drive the next phase of growth

In addition to the projects the company has already started building, Enterprise has a long list of potential opportunities it's currently pursuing. It has separated them into ones driven by growing oil and gas supplies and expansions fueled by demand.

On the supply side, the company noted that it could build additional natural gas processing plants; new pipelines to move gas, NGLs, and crude oil; additional oil storage capacity in the Permian; and more NGL fractionators. On top of that, Enterprise listed a few specific projects under consideration, such as expanding its Seaway crude oil pipeline or converting an NGL pipeline to oil service, which would both move oil from the fast-growing Permian Basin to the Gulf Coast. The company just finished expanding Seaway at the end of last year up to 575,000 barrels per day. However, production in the region has been growing so fast that the pipeline has been flowing at full capacity. Meanwhile, with Permian production on pace to outstrip the region's pipeline capacity by year-end, Enterprise is looking at converting an NGL pipeline to crude oil service so it can help ease this transportation bottleneck. While several new oil pipelines are underway and should start up in late 2019 and 2020, production could once again outpace pipeline capacity as early as mid-2021 given the region's current growth rate.

In addition to those supply-driven projects, Enterprise has several demand-led expansions under consideration. These include a second propane-consuming petrochemical plant, additional capacity to export liquefied petroleum gas, another expansion of its Aegis ethane pipeline, and an offshore oil export terminal. Enterprise has already started work on the oil terminal, which would include building an 80-mile pipeline to an offshore terminal capable of loading 85,000 barrels of oil per hour into very large crude carriers, which are oil tankers capable of handling 2 million barrels of oil. The company is currently trying to get the necessary permits for this project, which could take 18 to 24 months.  

Steady growth as far as the eye can see

With $5.3 billion of recently completed projects and another $5.7 billion under construction, Enterprise Products Partners' cash flow should continue rising for the next several years. Add to that the long list of potential projects under consideration, and the MLP should have more than enough fuel to keep increasing its distribution to investors -- just like it has in each of the past 56 straight quarters. That growing income stream is what makes Enterprise Products Partners such an excellent company to invest in for the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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