Enterprise Products Partners (EPD 0.50%) has an exceptional record of growing value for its investors. The master limited partnership (MLP) has increased its distribution for 24 straight years. That's a remarkable feat in the volatile energy sector.
While expansion projects and acquisitions have helped fuel its growth over the years, the energy company proved last year that working together toward a common goal can also pay big dividends. Co-CEO Jim Teague discussed the lengths the company went to maximize value for investors in 2022 on its fourth-quarter conference call.
Project 9
Enterprise Products Partners generates steadily growing earnings and cash flow. However, it has spent the last several years with an adjusted EBITDA number that started with an eight:
Image source: Enterprise Products Partners.
That led its co-CEO to quip at its 2022 analyst day that he "was tired of eights, I'd like to see a nine" for the beginning number of its adjusted EBITDA.
On the fourth-quarter conference call, Teague relayed that he didn't think a nine was possible for 2022. However, after talking about it internally, Enterprise set a companywide goal of boosting its adjusted EBITDA to more than $9 billion for 2022. They called it Project 9 and set a prize of $3,000 for every employee in the company if they made $9 billion of adjusted EBITDA last year. The MLP also established a stretch goal. If Enterprise achieved $9.3 billion of adjusted EBITDA, everyone would receive $5,000. Management also made it clear that the company wouldn't take any shortcuts to achieve that goal.
The MLP recently reported its results for the year, achieving a record adjusted EBITDA of $9.309 billion, up 11.1% from 2021. Improving market conditions, acquisitions, and expansion project completions helped fuel the bulk of that increase. However, the company's EBITDA also got a boost from Project 9. Teague stated on the call, "We received almost 200 success stories that resulted in something around $280 million toward Project 9 success." For example, Teague noted, "Distribution, operations, commercial, and our big data group worked to find a way to adjust fractionation set points to increase throughput at our Mont Belvieu complex." He stated, "Project 9 gave every Enterprise employee a common goal to boldly go where Enterprise has never gone before."
Enhancing its other fuel sources
Project 9 helped maximize the revenue of existing assets, supplying the company with some incremental earnings. The MLP plans to continue to seek ways to enhance its existing operations.
However, the company's biggest growth drivers remain investments to acquire assets and complete development projects. Last year, the company made two deals. It spent $3.2 billion to buy Navitas Midstream, which Teague noted in the fourth-quarter earnings release "was immediately accretive to Enterprise's cash flow per unit and has exceeded our expectations." It also spent $160 million to opportunistically purchase 580 miles of pipelines and related assets. Teague said that deal "enables us to cost-effectively optimize and expand our NGL and petrochemical pipeline systems on the Texas Gulf Coast." Even with those deals, the company ended the year with leverage below its target range, giving it the flexibility to continue investing.
Meanwhile, the company has $3.6 billion of assets under construction that will begin commercial operations in 2023. Teague noted: "These major projects include our second facility to convert propane into polymer grade propylene (PDH 2), two natural gas processing plants in the Permian basin, and a twelfth NGL fractionator at our Chambers County complex. These projects are underwritten by long-term agreements and will provide new sources of cash flow for the partnership." They're part of the company's $5.8 billion backlog of growth capital projects that should help fuel earnings and cash flow growth through 2025.
Positioned for more growth
Enterprise's Project 9 showcased the company's drive to grow value for investors. That initiative generated an incremental $280 million of earnings last year from its existing assets. It's one of many ways the company grows value for investors, allowing it to continue increasing its already sizable distribution.
With last year's learnings still fresh in its mind and more expansion projects under construction, Enterprise Products Partners should be able to continue growing its earnings and its distribution to investors in the coming years. That makes it a great income stock to buy for the long haul.
