Three Reasons Enterprise Products Partners Should Excite You
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s really hard to get excited about the midstream business. Sure, the distributions are nice but pipelines, processing and storage?
While we all want to invest in the promise for high octane returns from the next technological wonder, simple investments are proven to win. Over the past decade and a half this company has produced a total return of 1,618% while the S&P is up just 46%. How’s that for exciting? They’re not done yet -- they have several pipelines in the, well, pipeline to keep on growing.
With 50,600 miles of natural gas, NGL, crude oil, refined products and petrochemical pipelines, Enterprise Product Partners (NYSE: EPD) is a behemoth in the midstream industry. For a little perspective, if you laid their entire pipeline network end to end they’d have enough pipes to go around the world ... twice! They also own 190 MMBlbs of NGL, refined products and crude oil storage to go with 14 Bcf of natural gas storage capacity. Again, for some context, 1,000 cubic feet or 1 Mcf is enough to satisfy the natural gas needs for an average home for four days. One Bcf would satisfy the needs of 10,000 homes for one year, giving Enterprise the storage capacity to fuel a small city for a full year. While those stats should at least interest you, the following projects should excite investors.
Previously, I wrote about the fact that ethane is a stranded commodity in the Marcellus and Utica Shale plays. Enterprise is one of the companies working to rescue the commodity by transporting it to the Gulf Coast petrochemical industry. Their 1,230-mile Appalachia to Texas (ATEX) Express pipeline will have an initial capacity of up to 190 MBPD. It will include 369 miles of new pipe from Pennsylvania to Indiana, reverse an existing pipe from Indiana to Texas, and will end with an additional 55 miles of either newly built or leased pipe giving the ethane direct or indirect access to every ethylene plant in the U.S. They’ve already secured 15 year take-or-pay contracts and options with producers giving them excellent future revenue visibility for a project that will go into service in early 2014.
In another project to relieve an oversupplied commodity, Enterprise and 50/50 JV partner Enbridge (NYSE: ENB) agreed earlier this year to reverse the flow direction of the Seaway Crude Oil Pipeline. Enterprise had wanted to reverse this pipeline for a while but former JV partner ConocoPhillips (NYSE: COP) was opposed to the idea. After Conoco sold their interest to Enbridge it opened up the opportunity for this project to get the green light.
This project is designed to relieve the bottleneck in Cushing, Oklahoma by providing Gulf Coast access to Mid-Continent, Bakken and Canadian shippers. In phase one, the pipeline was reversed to move up to 150 MBPD and they will make modifications that will increase the capacity to 400 MBPD by next year. The second phase of the project would build a parallel pipeline that would expand the capacity by another 450 MBPD. They’ve secured shipper commitments of up to 20 years on the project again giving them excellent future revenue visibility.
While both the ATEX and Seaway projects are exceptional assets that will generate decades of returns for shareholders, their Texas expansion projects will continue to provide a bulk of the future growth. They have several smaller bolt-on projects in the Eagle Ford Shale, but their Texas Express (TEP) and Front Range NGL Pipelines to the west of the play excite me the most. The Texas Express is a JV between Enterprise (35%), Enbridge (35%), Anadarko (NYSE: APC) (20%) and DCP Midstream Partners (NYSE: DPM) (10%). The pipeline will be constructed and operated by Enterprise and it will consist of a 580-mile pipeline with initial capacity of 250 MBPD and expandable up to 400 MBPD. The project will go into service by this time next year. It will provide much needed takeaway capacity from producers in West Texas, the Rockies, and the mid-continent allowing them to maximize the value of their NGLs. Front Range is another JV with Enterprise, Anadarko and DCP Midstream all owning a third. Like the TEP, Enterprise will construct and operate this 435-mile pipeline, which will have initial capacity of 150 MBPD, expandable to 230 MBPD. These two pipelines will interconnect and Front Range will help with transportation constraints in the DJ basin.
Why should these projects excite investors? It’s all about the liquids these days and each of these projects ensures an easier flow of liquids from production basins to customers along the Gulf Coast. Given the low prices of natural gas, liquids production is driving the cap ex budgets of most producers and Enterprise is making sure they will be providing the infrastructure to get these commodities to market faster and cheaper.
As the liquids begin to flow through these new pipes, unit holders will see a direct benefit. Unlike a lot of MLP’s Enterprise is very investor-friendly as they no longer have a General Partner taking incentive distributions, allowing all the cash flowing through the company to either be reinvested into new high return projects or distributed to unit holders. With over $8 billion worth of projects currently under construction that’s a lot in future distributions for investors to be excited about.
latimerburned owns shares of ConocoPhillips and Enterprise Products Partners L.P. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Enterprise Products Partners L.P.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.