MOSCOW (MRC) -- Enterprise Products Partners' second-quarter profit slid as declines in natural gas and crude pipeline volumes and reduced activity at processing plants - due to producer shut-ins and weak NGL prices - caused revenue to plunge, reported S&P Global.
The company is cutting its combined spending on growth projects in 2021 and 2022 by a total of USD700 million from its previous expectations. It is also talking seriously with a joint venture partner about helping it fund existing build-out plans, executives said during an investor conference call in late July.
The cautious approach reflects uncertainty in the midstream sector about the future trajectory of supply and demand fundamentals amid the coronavirus pandemic, geopolitical tensions that could disrupt market flows and the November US presidential election that could lead to trade and tax policy changes.
"We're discussing some JVs with some of our largest projects, but I wouldn't say we're highly engaged with more than one," co-CEO Jim Teague said on the call. "But we are highly engaged with one."
Teague declined to elaborate.
Just 18 months ago, the operator of gathering and processing facilities, pipelines, storage and import and export terminals across oil, gas, NGLs and petrochemicals touted enthusiastically its plans to get bigger, believing that greater scale would enhance its market position and generate higher profits and investor returns.Then the coronavirus started to spread globally in January.
Enterprise still plans to get bigger - it has USD6.6 billion in projects currently in its construction queue, including in Texas an 11th NGL fractionator and a new segment of a crude pipeline that are expected to begin initial service by the end of September.
What's different now is the breadth of the growth and how much risk it is comfortable shouldering on its own, as it believes that the pace and scope of the reopening of energy markets as the virus eases in parts of the world is uncertain and may extend well into 2021.
It still expects to spend USD2.5-USD3 billion on growth capital projects this year. For 2021 and 2022, it expects growth capital investments will be reduced from previous guidance to approximately USD2.3 billion and USD1 billion, respectively.
Preferred joint venture partners, meanwhile, would ideally "bring more than money," Teague said. "They've got to bring throughput or offtake typically.".
For the April-June quarter, Enterprise reported net income attributable to limited partners of USD1.03 billion, or 47 cents/share, a 15% drop from the USD1.21 billion, or 55 cents/share, in the second quarter of 2019. Revenue in the latest quarter fell over 30% to USD5.75 billion from $8.28 billion in the year-ago period.
The company would consider a strategic acquisition if it complemented an existing business, but has not seen any opportunities over the last several months that would be compelling, executives said during the call. It is more focused on executing its existing assets, they said.
There also are no current plans to change its master limited partnership structure, amid its concerns that depending on who wins the upcoming US presidential election tax obligations and the cost of energy infrastructure could increase, executives said.
Looking ahead, Enterprise is optimistic there is a recovery on the horizon.
"I think you're going to get a price signal next year on hydrocarbons that turns some things back on," Teague said.
As MRC wrote before, Enterprise Products Partners LP (EPP), through one of its affiliates, has entered a long-term agreement with Marubeni Corp. of Japan, under which Marubeni will offtake polymer-grade propylene (PGP) produced from a second (PDH 2) plant currently under construction at EPP’s operations in Mont Belvieu, Tex., for supply to global customers. Concluded on June 16, the PGP offtake agreement is part of a long-term collaboration between EPP and Marubeni that also includes the export of liquefied ethylene, the first 25-million lb vessel of which loaded and sailed from EPP and Navigator Holdings Ltd.’s 50-50 joint venture marine terminal at Morgan’s Point, Tex., in early January, EPP and Marubeni said on June 30.
We remind that in July, 2020, Enterprise Products conducted maintenance at its propane dehydrogenation (PDH) unit in Mont Belvieu, Texas. This PDH unit has the capacity of 750,000 mt/y of propylene.
Propylene is the main feedstock for the production of polypropylene (PP).
According to MRC's DataScope report, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.