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Diversified oil and gas midstream major Enterprise Products Partners L.P. (EPD 0.32%) reported a fully diluted earnings per unit of $0.34 for the fourth quarter and $1.26 per unit for the full year 2015.

Distributions are safe, cushion grows
Despite the severe downturn in the oil industry, the master limited partnership ensured that its distributable cash flow coverage ratio remained at a very credible 1.3 times -- unchanged from the previous quarter -- despite increasing cash distributions by 1.3% from the third quarter. On an absolute basis, the Houston-headquartered MLP's distributable cash flow grew an impressive 12% from the previous quarter, to $1.1 billion.

Key to understanding Enterprise's stability stems from its relatively stable "gross operating margins" -- a non-GAAP figure -- that defines its core performance. Enterprise operates its midstream business using a "ship-or-pay model" in which the shipper (usually oil producers and refiners) guarantees the transportation of a minimum volume of hydrocarbons using the MLP's pipeline network. If the shipper defaults on that commitment, it still has to pay Enterprise a penalty, which isn't much less than the transportation fee itself. Thus, a fixed-fee approach ensures stability to the midstream business.

Diving into the details
For the fourth quarter, gross operating margins slipped a modest 0.4% from the year ago quarter, to $1.3 billion, despite total revenue tanking almost 40%. Below is the segmental breakup of Enterprise's gross operating profits:


Q4 2015
(in millions)

Q4 2014
(in millions)

Change (%)

NGL Pipelines & Services




Crude Oil Pipelines & Services




Natural Gas Pipelines & Services




Petrochemical & Refined Products Services




Offshore Pipelines & Services




Total gross operating profit




Data source: Enterprise Products Partners Q4 2015 earnings release.

Fixed-fee contracts ensure higher NGL and crude oil volumes handled
Its natural gas liquids, or NGLs, pipeline and storage business grew 18% to $375 million compared to last year's fourth quarter, thanks to NGL transportation volumes increasing more than 7% as well as loading and unloading volumes hitting a record 327,000 barrels per day.

However, natural gas-processing margins decreased $37 million despite increasing processed volumes by 0.4 billion cubic feet per day, to 4.9 Bcf/d. This shouldn't be surprising since absolute prices of crude oil and NGLs have decrease massively in 2015. NGL marketing business did offset the losses to some extent by growing $12 million year over year. Overall, NGL pipelines and services gross margins increased 3.5%, thanks to increased NGL volumes handled.

Crude oil pipelines and services, too, reported a 13% increase -- or $30 million -- in gross operating margins to $258 million. However, that was mainly due to the acquisition of EFS Midstream, an Eagle Ford midstream company, from Pioneer Resources. The acquisition contributed to as much as $50 million in gross margins for the fourth quarter.

While crude oil transportation volumes grew a modest 0.1 million bpd, to 1.4 million bpd, lower imports of international crude oil saw marine loading and unloading volumes decrease 35% to 443,000 bpd. The crude oil glut in the United States also took a toll on Enterprise's South Texas pipeline, which reported a $16 million decrease in gross profits, thanks to lower volumes transported.

Natural gas volumes drop but refined products make up
Profits rose in the natural gas transportation segment by almost 5% despite marginally lower volumes transported. Total natural gas transportation volumes fell 3% from last year's fourth quarter, to 11.9 trillion Btu per day. This means Enterprise had the ability to charge a higher fee despite a drop in natural gas volumes transported.

On the other hand, the petrochemical and refined products saw a significant 14% dip in gross margins due to lower sales margins. This was despite a modest 1.2% growth in total volumes transported to 804,000 bpd.

Net capital expenditures stood at $1.2 billion for the fourth quarter and 6.4 billion for the entire year. For 2016, management at Enterprise expects to invest between $2.5 billion and $2.8 billion for growth projects and $275 million for sustaining capital expenditure. This is definitely a huge pullback from 2015 levels.

Foolish bottom line
As an MLP, Enterprise's distributable cash flow looks safe. Above and beyond the cash that will be distributed to unitholders for the fourth quarter, Enterprise retains a cash cushion of $303 million -- a solid increase from $204 million retained from the previous quarter -- to invest back into the business after meeting its projected capital expenditures for 2016. That means the current yield of 7% should look highly tempting to income investors. While a prolonged oil downturn could have some detrimental effects on the company sometime in the future, Enterprise's robust business model seems to have cushioned the blow so far.