Enterprise Products Partners (EPD 0.85%) is on the cusp of a major growth wave. The master limited partnership (MLP) anticipates that approximately $6 billion of major capital projects will enter commercial service in the second half of this year. These and other projects should fuel accelerated growth well into 2027.
The MLP's impending growth wave isn't stopping it from adding even more fuel to its earnings growth engine. It recently inked a deal with oil giant Occidental Petroleum (OXY 1.68%) to enhance its operations and growth profile. As a result, the midstream giant should have even more fuel to continue increasing its nearly 7%-yielding distribution, which it has done for 26 straight years.
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Drilling down into the Oxy deal
Enterprise Products Partners has signed a deal with Occidental Petroleum to acquire a natural gas-gathering affiliate from the oil company. It will also provide natural gas-gathering and processing services to Occidental. The MLP will acquire certain gas-gathering systems in the Midland Basin from Occidental Petroleum for $580 million. It intends to fund the deal with its strong balance sheet. These assets include 200 miles of gas-gathering pipelines that support the oil and gas company's production in the region. Occidental has agreed to a long-term dedication of 73,000 acres across four counties in the Midland Basin region of Texas. This area contains more than 1,000 future drillable locations.
As part of the deal, Enterprise Products Partners will build a new natural gas-processing plant (Athena) to support Occidental's growing output in the region. The plant will have the capacity to process 300 million cubic feet of gas per day and extract up to 40,000 barrels of natural gas liquids (NGLs) per day. Enterprise expects to complete this plant by the end of 2026.
The Occidental deal will provide Enterprise Products Partners with incremental cash flow from the acquired gathering system when the sale closes this quarter. Additional cash-flow growth will begin when the Athena plant comes online at the end of 2026. As Occidental expands its output on the dedicated acreage, Enterprise may have opportunities to expand the gathering system and processing capacity, creating further growth beyond 2026.
Adding to the growth wave
The Occidental deal will enhance Enterprise's already robust near-term growth outlook. It's wrapping up construction on $6 billion of major capital projects this year. The MLP has already completed the Mentone West 1 and Orion gas-processing plants, significantly expanding its capacity in the Permian Basin. Additionally, it recently completed the first phase of its Neches River Terminal (NRT). Meanwhile, it expects to complete its Bahia Pipeline, Fractionator 14, and Morgan's Point Enhancements in Q4.
The MLP has several more expansion projects on track to enter service in 2026. These projects now include two more gas-processing plants (Mentone West 2 and Athena), the second phase of NTR, an expansion of the Enterprise Hydrocarbon Terminal, and additional gas-gathering, compression, and treating projects in the Permian.
Enterprise continues to expect its capital spending to be $4 billion to $4.5 billion this year. Meanwhile, the addition of Athena will boost its 2026 range to between $2.2 billion and $2.5 billion (up from $2 billion to $2.5 billion). With its cash flow expected to rise as expansion projects enter commercial service, and its capital spending on track to decline significantly next year, Enterprise appears poised to generate substantially more excess free cash flow in the coming year.
Given that Enterprise already has the strongest balance sheet in the midstream sector, it can use its increased flexibility to continue growing shareholder value. The MLP could deliver a higher distribution growth rate (the company has increased its payment by 3.8% over the past year), make additional unit repurchases ($170 million through the first half of this year), approve new capital projects, and make additional acquisitions.
Accelerated growth in the coming quarters
Enterprise Products Partners is adding to an already robust growth wave by making a deal with Occidental. It will generate incremental cash flow from the purchase of the gathering system and additional growth from the newly approved Athena gas-processing plant, which should be operational late next year. Those catalysts add to the huge wave of expansion projects coming down the pipeline over the next year and a half. They'll give it a lot more fuel to continue increasing its high-yielding distribution. It makes the MLP a very attractive option for income-seeking investors as long as they're comfortable receiving the Schedule K-1 federal tax form it sends each year.
