By: Jon Costello
Enterprise Products Partners, L.P. (EPD) has long been my favorite long-term holding among oil & gas midstream operators. The company has continued an uninterrupted string of strong performance for decades. This year will mark its 27th consecutive year of distribution growth, putting it in the rarified league of dividend aristocrats in a cyclical commodity industry.
The units remain attractive. Despite all the company’s positive attributes, it continues to trade at a valuation discount to its large-cap midstream peers. Its fundamental performance—and the high likelihood that the performance continues—augurs for a higher unit.
Quarterly Performance Remains Steady
EPD performed well in the first quarter, with distributable cash flow increasing by 5.5% and distributions declared increasing by 5.4%. Year-over-year Adjusted EBITDA during the quarter was broadly flat. Distributions were covered 1.8-times by free cash flow, providing a healthy cushion for the company’s other capital initiatives, such as growth capex and future distribution increases.
EPD currently has $6 billion in organic growth projects slated to be completed in 2025, which stands to generate approximately $300 million of Adjusted EBITDA growth this year for an annual Adjusted EBITDA growth rate in the high-single-digit percent.
Operating results were strong, as usual. The company moved a whopping 13.2 million boe/d of total hydrocarbon products and 2 million bbl/d of crude oil through its systems. It managed to grow throughput in most segments, with only the petrochemical segment suffering due to PDH 1 unexpected downtime.
First-quarter segment operating results and their comparison with those of previous quarters are shown below.
Longer-term, throughput volumes will likely continue to chug along on their well-established upward trajectory. I expect the trend to continue at least over the next three years, which will drive strong financial performance.
EPD’s attractive prospects over the next three to five years are underpinned by the company’s impregnable competitive position, which features vertical integration and a vast scale that will cement its central role in the U.S. energy complex for decades.