Enterprise Products positions itself in changing NGL market

By Paula Dittrick
OGJ Online

Enterprise Products Partners LP, Houston, has invested $1.2 billion in midstream energy assets since its initial public offering in 1998, establishing itself as a major NGL player in the US Gulf of Mexico market and dominating the Mont Belvieu, Tex., NGL hub.

Enterprise Products provides processing, fractionation, transportation, and storage to producers. It is the second largest publicly traded, midstream energy partnership with an enterprise value of $3 billion.

Jim Teague, president and CEO of the NGL division for Enterprise Products, has watched much consolidation and realignment within the gas sector during recent years.

"Historically, NGL production was dominated by majors, midstream companies, and small independents. Today, large energy service and niche players are consolidating the midstream sector along the value chain," Teague said.

For instance, he was president of Tejas Natural Gas Liquids LLC when Enterprise acquired that company in September 1999. Previously, he was president of marketing and trading for Mapco Inc. until Williams acquired the company.

Teague also worked for Dow Chemical Co. from 1972 until 1996 where he had various corporate positions, including vice president of feedstocks.

"Recent M&A activity has created mega NGL producers. Today seven of the top 10 weren't in the top 10 in 1992," Teague said. Enterprise was the ninth largest NGL firm last year, producing 85 million b/d.

"Everything we are doing is looking at the value chain. We are able to serve almost all petrochemical crackers on the Gulf Coast. We are able to serve most refineries along the upper Gulf Coast and Louisiana," Teague said.

The Gulf Coast accounts for 55% of domestic NGL production and 75% of domestic NGL demand.

The petrochemical industry is playing a greater role in NGL consumption, he said. In 1999, petrochemicals accounted for 54% of the US market share demand for NGLs while refining accounted for 16% and fuel uses accounted for 30%.

In 1974, when petrochemicals and refining each accounted for 32% of demand while fuel uses accounted for 36%, Teague said.

"Petrochemical consolidations will put further pressure on companies with midstream NGL activities to consolidate and integrate across the value chain," Teague said. "US petrochemicals and NGL producers are more dependent on each other than any other time in history."

NGL midstream players are seeking consolidations to provide themselves with economies of scope and scale. "Linking and leveraging is critical for success," Teague said.

Mark Easterbrook, a diversified energy analyst for Dain Rauscher Wessels Inc., has a strong buy rating on Enterprise.

"They are pretty unique," Easterbrook said, calling Enterprise "more diversified" than pure play midstream companies. "They are one of the biggest fractionators. They are the biggest in the biggest trading hub, Mont Belvieu."

Enterprise reported fourth quarter net income of $55.2 million compared with $54.3 million a year earlier. Enterprise generated $80.7 million in cash flow during the fourth quarter 2000, compared with $63.6 million for the same period of 1999.

O.S. "Dub" Andras, Enterprise president and CEO, said, "The growth of our net income and cash flow is due to our focused, high-quality asset base and business expansion over the past 18 months, which has benefited from a strong demand for NGLs."

Last year, Enterprise invested $240 million in fee-based, NGL and propylene pipelines and related facilities. It broadened its asset base on the Gulf Coast to include natural gas pipelines with the purchase of interests in five pipeline systems for $112 million and the acquisition of Acadian Gas LLC for $226 million (OGJ Online, Sep. 25, 2000).

"One of our latest fee-based investments, the Lou-Tex NGL pipeline, which links major NGL markets in Louisiana and Texas, commenced operations in late November and has immediately contributed earnings and cash flow at levels which has surpassed our expectations," Andras said.

Enterprise's strong cash flows and solid financial position provide financial flexibility as the company seeks to grow its asset base by $300 million/year.

"I am particularly pleased in our financial performance despite the challenges brought by the unprecedented level of natural gas prices during the fourth quarter," Andras said.

High gas prices caused a reduction in NGL from processing plants that are served by Enterprise pipeline and fractionation facilities.

"This has resulted in regional supply imbalances of NGLs. Our integrated NGL system has provided us opportunities to service this marketplace, which has helped to thus far reduce the negative effect of higher gas prices," Andras said.

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