Energy companies produce natural gas, oil, and other petrochemical products from their wells, terminals, and plants, but it's not worth anything just sitting there. Customers are demanding more and more energy products for their homes and businesses. Standing between them as the toll-taker is Motley Fool Income InvestorEnterprise Products Partners L.P.
Enterprise Products, a publicly traded partnership similar to Penn Virginia Resources
Results from the first quarter reflect not only a continued demand for energy products but also the integration of the GulfTerra Energy Partners LP acquisition (completed in September of '04) as well. Reported revenue climbed 50% to $2.6 billion, and operating income climbed 86% to $165.5 million.
While that's all well and good, unitholders (partnership-speak for shareholders) really want to know about the distributable cash flow, since that number goes a long way toward determining payouts. For the first quarter, distributable cash flow swelled to $252 million from $87 million a year ago (a result that does not include a 100% interest in GulfTerra).
Excluding $42 million in sale proceeds, distributable cash flow covered distributions to partners by 1.2 times (and those distributions are 10% higher than a year ago). The company will use that leftover capital for ongoing organic growth projects and possible debt reduction.
The business performed well in nearly every area, with the company's NGL pipeline business contributing the majority of gross operating profits. Volumes were stronger overall; the company transported an average of more than 1.5 billion barrels of liquids and 7.6 billion cubic feet of natural gas each day.
Although this company isn't particularly sensitive to energy prices (except its fractionating business) aside from their impact on production and demand volumes, it is sensitive to the rates it can charge for its pipelines. To that end, it's clearly good news that the company has secured additional tariff increases, which should improve results for the rest of the year.
Despite the stock's nearly 30% climb in the past year, it doesn't look particularly expensive. What's more, management has kept up an appealing level of distributions while still proceeding with incremental investment projects that should continue to boost the scale and profitability of the business. Though these sorts of partnerships often trade with the market's perceptions of interest-rate and energy-price movements, patient long-term investors should continue to look at Enterprise as a quality income-producing opportunity.
Fuel up with these other Foolish missives on the energy industry:
- PVR's Lovely Lump of Coal
- Chesapeake Bets Against the Peak
- Kinder Morgan's a Winner
- Coal Stays Green
For more great income-producing ideas like Enterprise, try a free trial subscription to Motley Fool Income Investor.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).