Enterprise Products Partners (EPD +0.22%) had a record-breaking first quarter. The energy midstream company set several new operational records during the period, fueled by new expansion projects and war-driven export demand. That helped drive strong financial results in the period.
Here's a look at the quarter and what the high-yielding (currently 5.7%) master limited partnership (MLP) sees ahead.
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A quarter for the record book
Enterprise Products Partners set 12 new operational records during the first quarter, including marine terminal volumes of 2.3 million barrels per day (up 15%). Co-CEO Jim Teague noted in the earnings press release that energy export disruptions in the Middle East due to the war with Iran drove "strong demand for the security and reliability of U.S. energy exports." He stated that the midstream company was experiencing an "uptick in demand across all of our marine terminals, including record demand for the partnership's ethylene export facility." The company also expedited the completion of the second phase of its Neches River NGL marine terminal in the quarter, putting it in an even stronger position to help meet surging demand for U.S. energy.
Expansion projects also played a major role in the company's record-setting quarter. Enterprise Products Partners benefited from the volume ramp-up of recently completed projects, including the Bahia NGL pipeline, NGL fractionator 14, and three natural gas processing plants in the Permian Basin.
Surging volumes helped fuel robust earnings and cash flow growth. Enterprise Products Partners generated $2.7 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the quarter, up 10%. Meanwhile, its adjusted free cash flow also rose 10% to $2.3 billion. The company generated enough cash to cover its high-yielding distribution by a comfortable 1.8 times. That allowed it to retain $1.5 billion to fund expansion projects and repurchase $116 million of its common units.
NYSE: EPD
Key Data Points
Ample fuel to continue growing
Enterprise Products Partners completed one new expansion project during the quarter (Mentone West 2 Gas Processing Plant). It expects to finish Neches River Phase 2 in the second quarter and complete the LPG expansion of its Enterprise Hydrocarbons Terminal and Athene gas processing plant in the fourth quarter. These projects will supply it with incremental income in the coming year as they ramp up their volumes. Meanwhile, it recently approved two more gas processing plants that will enter commercial service next year, along with an expansion and extension of the Bahia pipeline. Overall, the MLP has $5.3 billion of major capital projects under construction through the end of next year.
The MLP expects to continue approving projects. It anticipates that natural gas and NGL production in the Permian Basin will continue to grow due to the trend of higher gas ratios in oil wells drilled in the region. That growing NGL production will flow downstream through the company's integrated system of pipelines, fractionators, and export terminals, which should support additional capacity expansions.
Income and growth
Enterprise Products Partners should continue to grow its cash flow as it supports rising demand for U.S. energy. That will enable the MLP to increase its high-yielding distribution, which it has done for 27 consecutive years. This income and growth combination could give it the fuel to generate high-octane total returns. That makes it an ideal long-term investment for those comfortable receiving the Schedule K-1 Federal tax form the MLP sends each year.
