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Enterprise Products Partners Q2 Profit Slides, Misses Estimate – Quick Facts

By Amarendra Bhushan for CEOWORLD Magazine Updated:July 27, 2009

Enterprise Products Partners L.P. (NYSE:EPD) today announced its financial results for the three and six months ended June 30, 2009.

For the second quarter of 2009, Enterprise reported gross operating margin of $509 million, operating income of $328 million and net income of $200 million, which were each reduced by a $34 million non-cash charge related to the forfeiture of Enterprise’s investment in the Texas Offshore Port System partnership (“TOPS”) and $12 million of estimated lost business due to the continuing effects of the 2008 hurricanes.

Operating income and net income for the second quarter of 2009 were also reduced by $4 million for costs associated with the pending merger of a wholly-owned subsidiary of Enterprise and TEPPCO Partners, L.P. (“TEPPCO”).

Net income attributable to Enterprise for the second quarter of 2009 was $187 million, or $0.32 per unit on a fully diluted basis, versus $263 million, or $0.52 per unit on a fully diluted basis, for the second quarter of 2008.

Net income for the second quarter of 2009 was negatively impacted by approximately $50 million, or $0.11 per unit, consisting of a $34 million non-cash charge in connection with Enterprise’s dissociation from TOPS in April 2009; $12 million for estimated lost business as a result of the continuing effects of Hurricanes Gustav and Ike; and $4 million for costs related to the pending merger of Enterprise and TEPPCO.

The partnership generated $328 million of distributable cash flow in the second quarter of 2009 compared to $347 million in the same quarter of 2008. On July 15, 2009, the Board of Directors of Enterprise’s general partner approved an increase in the partnership’s quarterly cash distribution rate to $0.545 per unit with respect to the second quarter of 2009, representing a 5.8 percent increase over the $0.515 per unit rate that was paid with respect to the second quarter of 2008.

Distributable cash flow for the second quarter of 2009 provided 1.1 times coverage of the cash distribution to be paid to limited partners. Enterprise retained $34 million of distributable cash flow in the second quarter of 2009, which is available to reinvest in growth capital projects, reduce debt, and decrease the need to issue additional equity. Distributable cash flow for the first six months of 2009 was $670 million, which provided 1.2 times coverage of distributions paid to limited partners with respect to that period. Enterprise retained $90 million, or approximately 13 percent, of its distributable cash flow for the first six months of 2009.

Distributable cash flow is a non-generally accepted accounting principle (“non-GAAP”) financial measure that is defined and reconciled later in this press release to its most directly comparable U.S. GAAP financial measure, net cash flows provided by operating activities.

“Enterprise reported strong performance in the second quarter of 2009,” said Michael A. Creel, president and chief executive officer of Enterprise. “Volumes handled by our integrated midstream energy system were at record or near record levels. Despite lower drilling activity in many of the energy producing basins that we serve, our 36,000-miles of pipeline systems transported a record 9.7 trillion Btus per day of natural gas and 2.2 million barrels per day of NGLs, crude oil and petrochemicals. We benefited from an increase in natural gas production delivered to our facilities and higher demand for NGLs by the petrochemical industry. The operating rate for the petrochemical industry has rebounded from the recessionary lows of the fourth quarter of 2008 and first quarter of 2009 and its preference for NGLs over more expensive crude oil derivatives continues.”

“During the second quarter of 2009, Enterprise benefited from an increase in volumes and cash flow from its Independence Hub platform and Trail pipeline system, which together accounted for a $44 million increase in gross operating margin compared to the same quarter of last year when the system was out of service for 66 days due to repairs. In our NGL Pipeline & Services segment, record equity NGL production and fractionation volumes, NGL pipeline volumes of 1.8 million barrels per day, and strong results from our Rocky Mountain natural gas processing plants and NGL marketing activities resulted in a $36 million increase in gross operating margin compared to the second quarter of last year,” said Creel.

“Despite strong overall system volumes, lower commodity prices in the second quarter of 2009 compared to the record prices of the second quarter of 2008 resulted in an approximate $50 million decrease in revenues for a few of our fee-based assets. These assets included our San Juan natural gas gathering system, which has certain contracts with fees that are indexed to natural gas prices. Certain of the partnership’s other natural gas pipeline systems and its butane isomerization business, which generate additional revenue from the sale of condensate extracted from the pipeline and sale of NGL by-products produced in the isomerization process, respectively, were also impacted by the lower commodity prices,” stated Creel.

“We are pleased with the performance of our diversified portfolio of businesses. We believe we have a solid financial position from which to complete our merger with TEPPCO in the fourth quarter of this year and to develop new organic growth opportunities that expand our integrated system,” concluded Creel.

Revenue for the second quarter of 2009 decreased to $3.5 billion from $6.3 billion in the same quarter of 2008 primarily due to lower commodity prices in the second quarter of 2009. Certain of Enterprise’s revenues, operating costs and expenses can fluctuate significantly based on the prices of natural gas and NGLs without necessarily affecting gross operating margin and operating income to the same degree. Gross operating margin was $509 million for the second quarter of 2009 compared to $534 million for the second quarter of last year.

Operating income was $328 million for the second quarter of 2009 versus $374 million of operating income for the same quarter of 2008. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) for the second quarter of 2009 was $505 million compared to $514 million for the second quarter of 2008. Gross operating margin and operating income for the second quarter of 2009 were reduced by approximately $46 million due to the $34 million non-cash charge associated with the forfeiture of Enterprise’s investment in TOPS and $12 million for estimated lost business as a result of the continuing effects of Hurricanes Gustav and Ike. Operating income for the second quarter of 2009 was reduced by an additional $4 million for costs related to the pending merger of Enterprise and TEPPCO.

Adjusted EBITDA for the second quarter of 2009 was reduced by approximately $16 million for the estimated lost business due to the 2008 hurricanes and the merger-related costs. Gross operating margin and Adjusted EBITDA are non-GAAP financial measures that are defined and reconciled later in this press release to their most directly comparable GAAP financial measures.

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