Enterprise Products Partners (EPD) Tops Q1 EPS by 9c, Revenues Miss; Reduces FY20 Cap. Ex. Outlook

Enterprise Products Partners (NYSE: EPD) reported Q1 EPS of $0.61, $0.09 better than the analyst estimate of $0.52. Revenue for the quarter came in at $7.48 billion versus the consensus estimate of $8.25 billion.

“We would like to thank the healthcare professionals on the frontlines and those in the laboratories for their compassion, tireless efforts, courage and creativity in treating those stricken with COVID-19 and developing therapies and vaccines,” said A. J. “Jim” Teague, co-CEO of Enterprise’s general partner. “We would also like to thank first responders and local, state and federal officials for making the many tough calls to keep our communities safe and functioning during this pandemic. I would also like to recognize our employees for their hard work, flexibility and ingenuity in keeping our midstream energy system performing reliably and responding to our customers’ needs for logistical services during these challenging times.”

Teague added, “Enterprise entered 2020 in the strongest financial position in our company’s history in terms of the credit quality of our customers, fee-based contracts, credit ratings, leverage, cash flow coverage of our distributions and liquidity. The first quarter began with good momentum and this translated into our solid operational and financial results for the first quarter of 2020. However, following March 6, 2020, as the coronavirus pandemic expanded, shelter-in-place mandates and travel restrictions quickly resulted in historic demand destruction for refined products and a collapse in crude oil demand. At the same time, OPEC+ exacerbated the situation by increasing production to begin a price war in part targeting the U.S. energy industry, its jobs and its investors. These events led to the unprecedented collapse in the May 2020 West Texas Intermediate crude oil futures contract that traded as low as a negative $40 per barrel before settling at $10.01 per barrel on April 21, a 76 percent decline from its closing price on March 6.”

“While OPEC+ recently agreed to reduce production by approximately 9.7 million BPD beginning in May 2020, this is too little, too late. The OPEC+ production cut is a fraction of the estimated 25 million BPD of crude oil demand destruction associated with the coronavirus.”

“At this time, coronavirus impacts to the macro global economy and hydrocarbon supply and demand for the remainder of 2020 are highly uncertain. Enterprise is adapting to this environment with the following priorities and actions:

The health and safety of our employees is our highest priority. We are following the guidance from local, state and federal authorities. We are also performing routine deep cleaning of our facilities, practicing social distancing and having office employees work remotely where practicable. Certain of our operating facilities have gone to multiple teams working “7 days-on/7 days-off” to provide team separation, redundancy and asset reliability.
We completed an initial review of our capital projects and effectively reduced our planned 2020 growth capital investments by approximately $1 billion and a $100 million reduction of sustaining capital expenditures comprised of discretionary, non-integrity related projects. We are currently in negotiations on joint ventures, which could lead to a further reduction of capital expenditures.
We are reviewing and prudently reducing operating expenses while maintaining our asset reliability, integrity, safety and environmental standards.
We enhanced our financial flexibility and liquidity with an additional $1.0 billion 364-day bank credit facility in early April 2020, which increased our liquidity at March 31, 2020 to approximately $8.0 billion on a pro forma basis.”

“The speed and intensity of this economic sudden stop for developed countries has been breathtaking. We expect natural gas, NGL and crude oil production to decline more rapidly than in previous supply shock cycles. We have not yet seen a material change to volumes across our system; however, we will not be immune. In past cycles, our integrated system and storage assets have provided our customers valuable flexibility as well as being a reliable hedge by allowing us to use uncontracted capacity to capture regional price spreads and contango opportunities to partially offset headwinds in some of our fee-based businesses due to declining production. We continue to see good demand pull from our petrochemical customers and in LPG exports. The key to a recovery for the energy industry will be the restart of the global economy; the timing of which is unknown at this time.”

Teague concluded, “Enterprise has successfully endured through challenging economic cycles before. We entered into this cycle in a position of strength. With the ongoing dedication of our employees and our premier midstream energy system, we believe Enterprise will effectively manage through this period, capture opportunities and emerge stronger than ever.”

Capitalization

Total debt principal outstanding at March 31, 2020 was $29.9 billion, including $2.6 billion of junior subordinated notes, to which the debt rating agencies ascribe partial equity content. At March 31, 2020, Enterprise had consolidated liquidity of approximately $7.0 billion, which was comprised of unrestricted cash on hand and available borrowing capacity under our revolving credit facilities. On April 3, 2020, Enterprise increased its liquidity when its subsidiary, Enterprise Products Operating LLC (“EPO”) entered into an additional 364-day revolving credit agreement, which provides us with an incremental $1.0 billion of borrowing capacity. On a pro forma basis at March 31, 2020, Enterprise’s liquidity would have been $8.0 billion after giving effect to the additional borrowing capacity of the new 364-day revolving credit agreement.

In total, capital investments for the first quarter of 2020 were $1.1 billion, which included $69 million of sustaining capital expenditures. For 2020, we currently expect to reduce our growth capital investments by approximately $1 billion to a range of $2.5 billion to $3.0 billion compared to previous guidance. We expect our sustaining capital expenditures for 2020 will be $100 million lower compared to previous guidance to $300 million. Based solely on sanctioned projects, we currently expect growth capital investments for 2021 and 2022 to be approximately $2.5 billion and $1.5 billion, respectively. These amounts do not include capital investments associated with our proposed SPOT deepwater offshore crude oil terminal, which remains subject to governmental approvals. We do not expect to receive governmental approvals for SPOT during 2020. We are currently in negotiations on joint ventures, which negotiations could lead to a further reduction of Enterprise’s planned growth capital investments for 2020, 2021 and 2022.

For earnings history and earnings-related data on Enterprise Products Partners (EPD) click here.

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