Image source: Enterprise Products Partners investor presentation.
Companies in the pipeline business have made their fair share of questionable moves this year. Between making purchases of overleveraged assets and making large acquisitions when it's very hard to get favorable financing, investors have to be wondering if a lot of these maneuvers will drive long-term value for some of these companies. One company that hasn't made too many of these questionable actions is Enterprise Products Partners (EPD +1.09%). Let's take a quick look at the big ones that had a significant impact on the company in 2015 and what they should mean for investors longer term.
Completing Oiltanking Partners acquisition
One aspect of Enterprise's business that has seen strong growth in recent quarters is the company's export business. Excess volumes of natural gas liquid products such as ethane and propane across the U.S. have become a lucrative market for Enterprise as it has become one of the world's largest NGL exporters in the world.
Data source: Enterprise Products Partners investor presentation.
What has helped make this position possible was when the acquisition of Oiltanking Partners was completed. The deal was initially announced back in 2014, but the benefits weren't realized until fiscal year 2015. By acquiring Oiltanking's assets, the company has a much larger footprint of marine storage and terminal assets. Rather than needing to pay Oiltanking for use of those assets -- Enterprise was 30% of Oiltanking's revenue at the time of the acquisition -- Enterprise can cut its export costs.
What makes this deal even more important to 2015 is the recent congressional decision to lift the export ban on crude oil. With one of the largest terminal and storage footprints in the Houston as well as numerous export terminals in Texas, Enterprise could be one of the biggest beneficiaries of the recent change in policy.
Data source: Enterprise Products Partners investor presentation.
Trading offshore pipeline assets for Eagle Ford assets
Aside from being one of the largest pipeline and logistics networks in the U.S., Enterprise is able to drive a lot of value from that network because of its interconnectivity. By being able to transport NGL products from several production basins to multiple end markets, customers want to use Enterprise's system because it allows them to get the best price possible.
This is why Enterprise's decision to unload its offshore pipeline assets and use the proceeds to acquire a gathering and processing network in the Eagle Ford shale basin looks like a near stroke of genius. Prior to the two deals, Enterprise's offshore pipeline systems were not directly connected to the rest of its inland system and was responsible for only a modest amount of gross profits.
By shedding these assets for $1.5 billion, it enabled the company to make its $2.15 billion purchase of natural gas and natural gas liquid gathering and processing assets from Pioneer Natural Resources and Reliance Industries. Almost all of these assets are already connected to Enterprise's existing pipeline network in the area, and it also gives the company an additional 119,000 barrels per day of condensate stabilization capacity that can help process NGLs to be either used in domestic consumption or added to Enterprise's existing export capacity.
Another cherry on top of this deal is that it has 20 years of dedicated acreage contracts, which means that any gas or NGLs that Pioneer extracts from that set acreage will go through that system. This will ensure that the assets Enterprise bought will have a long runway of profitability.
Add it all up and the company has traded in a marginal asset for one that improves its overall network connectivity, gives it a dedicated customer for 20 years, and increases supply of products Enterprise can then turn around and export for higher than domestic prices. That sounds like a win-win all around.
What a Fool believes
Enterprise Products Partners rarely makes headlines. You probably won't find its management team on CNBC, nor will you see its name in the rumor mill when it comes to high-profile acquisitions. When it does make a move that is newsworthy, though, it tends to be one that flies under the radar but adds immense value to the company. If you are an investor, those are the kinds of moves you want a management team to make, and they go to show that Enterprise is one of the best in the business when it comes to making deals.
