Despite the lower-than-expected revenue at Enterprise Products Partners (EPD 1.33%) this past quarter, there were still plenty of reasons for investors to be satisfied with the results. In spite of the bleak sentiment for the entire oil and gas industry right now, Enterprise's management still has reason to think that the future for the company is very bright. Here are five quotes from members of Enterprise's C-suite that show its thinking for how to manage the next several years of growth for the company.
1. We're growing faster than you might think
Some companies in the pipeline space have received a lot of attention because of their very large backlogs of projects and what that could mean to the respective company's future. On paper, Enterprise's growth plans didn't look as robust. However, if you look at what the company has achieved in the past 12 months, you might change your mind.
In the last 3 quarters we have completed $9 billion of acquisitions and capital growth projects, and we have $8.3 billion of projects currently under construction that will begin commercial operations between now and 2017. This includes $2.4 billion of projects that are scheduled to be completed in the second half of this year. We continue to see many additional growth opportunities, both organic growth projects and acquisitions, and as they advance to the committed stage we will provide information about them.-- CEO Michael A. Creel
At the beginning of the year, Enterprise closed on a deal to acquire Oiltanking Partners for $6 billion, and it also more recently announced that it had done basically performed an asset swap where it acquired natural gas gathering and processing assets in the Eagle Ford shale in exchange for its offshore pipelines. These moves, combined with the $8.4 billion in projects coming online in the next could of years will give the company even greater connectivity, an extremely valuable trait for a pipeline network.
2. We're going to trim our debt profile a little once some of these new projects come online
With all of these deals and projects under construction, Enterprise has stretched itself a little bit further than it prefers. According to CFO Randal Fowler, though, the company expects this to be corrected in the next several months as some of these new projects start to come online and generate earnings.
Based on our construction cycle, we still expect debt to adjusted EBITDA to peak around 4.25x before returning to our historical range of 3.5x to 4x after some of these large organic projects are completed and generating EBITDA.
One thing this might suggest, though, is that Enterprise may not be in a huge rush to make a big acquisition anytime soon until it gets into a more comfortable debt range.
3. There is much more to our recent acquisition than what the price tag says
Some of the analysts on the most recent conference call had some questions about the most recent acquisition of those Eagle Ford assets and how much upside they may have. The biggest concern there was that it overpaid for some assets to get into a high-quality shale formation. Enterprise doesn't see it that way, though. As COO A. James Teague put it, by buying these assets from an oil and gas producer, it can open those assets up to other producers and make them more attractive long term.
We've kind of been here before. We bought systems from producers. And Bill hit on it. A producer to do a deal for midstream service with another producer, typically that doesn't work. We've been in situations where we bought other systems and we'd increase the volume because they like dealing with somebody that's independent, somebody that's not a competitor. We think that will be the case.
Not only did Enterprise receive a 20-year volume commitment from the previous owner of those assets, but it also has an opportunity to integrate that system with its expansion plans at the Corpus Christi ship docks that could make it another major component of Enterprise's natural gas liquids export business.
4. Don't worry, we still have plenty of work for the future
In order for Enterprise and other pipeline companies to increase their market value, they need to grow their network and services. Considering all the growth that is going on in the pipeline space today. There are some questions as to whether there will be much work remaining in the future. Mr. Creel wanted to put that notion to rest quite quickly.
I think with respect to organic opportunities it's the same. It's the same it has been for years. It's more -- we have more opportunities than we're going to do. So opportunities is not the controlling factor. It's how we approach growth in a disciplined manner and fund it in a way that adds value for our unitholders.
For Enterprise, the challenge isn't finding projects to do, it's finding the ones that fit the company's existing portfolio the best and will drive gains over the long term.
5. We're not interested in the big headline grabbing acquisitions
Going back to that theme of other companies in the pipeline space, there has been a lot of buzz lately around one of Enterprise's peers buying a smaller pipeline company. When asked about the possibility of a large acquisition, Mr. Creel wanted to make it as clear that Enterprise's strategy around acquisitions is just as rigorous as its organic growth strategy. In fact, Mr. Creel also pointed out that the structure of Enterprise is different than that of some of its peers, which gives the two companies different motives.
[W]e've done over $6 billion of acquisitions in the last 9 months, so we're involved. One thing that we've consistently said about Enterprise is that we don't grow and do M&A just for the sake of getting bigger. We've got to do things that make sense for our investors. And one thing that is relatively unique about us as opposed to the other names that you see in that market is that we've only got one equity security. So we have our common units. We don't have a general partner with IDRs that has different economics. Management, the sponsor of the partnership, individuals, our employees and outsiders are all invested in the same security. So we're focused on growing the value of each of units. So a large transaction that gets us really big may not really create any value, may actually destroy value. So we look at a lot of things. We do the things that make sense.
For Enterprise, the fact that it isn't beholden to different interests like General Partners stakes and incentive distribution rights means that it can take a much more measured approach to its long-term strategy. This is part of the reason why it consistently generates more cash from operations than what it pays out and then uses that cash to fuel growth.
What a Fool believes
Enterprise may not get its name in the news cycle much, but based on what management thinks, that is A-OK. The company is much more focused on doing the behind-the-scenes things that generate long-term value for shareholders. Based on these comments, it appears that management is planning on doing that through measured growth projects while maintaining a solid financial standing. If you are a sharehodler, you can't argue much with that philosophy.
