EPP Q2 net income shrinks 17% as natural gas, petrochemical margins soften

Enterprise Products Partners (EPP) had second-quarter 2020 net income of $1 billion, compared with $1.2 billion for the same quarter a year earlier. Total gross operating margin eased to $2 billion from $2.1 billion for the same timings. “During the second quarter of 2020, refining industry utilization rates bottomed in April at approximately 68%, which negatively impacted our propylene fractionation and octane enhancement businesses due to lower feedstock availability and a decrease in international demand, respectively. Currently, the refining industry has recovered to near 80% operating rates, which is supporting a recovery in our propylene fractionation and octane enhancement activities as we begin the third quarter of 2020. With respect to crude oil and natural gas, we are continuing to see production increasing from the lows experienced in May,” stated co-chief executive officer A.J. “Jim” Teague.

“To provide some perspective on the continuing recovery in our volumes, based on average field operating data thus far in July, we have seen total gross natural gas processing inlet volumes and NGL production from the plants we operate recover to 88% and 98%, respectively, of March 2020 activity levels. Aggregate gross volumes at Enterprise-operated NGL fractionators for July are averaging 107% of March levels, which includes the benefit of our tenth fractionator in the Mont Belvieu area that began service in March 2020. Total gross volumes for Enterprise-operated NGL pipelines in July are averaging 104% of March levels. Aggregate gross volumes for Enterprise-operated crude oil pipelines in July are averaging approximately 80% of March levels. Total gross volume from our Mont Belvieu propylene fractionation plants for July is averaging 107% of March production levels,” said Teague.

The company plans in third-quarter 2020 to begin initial service at its eleventh Mont Belvieu NGL fractionator and the Midland-to-ECHO segment of the Wink-to-Webster (W2W) joint-venture crude pipeline. EPP is also continuing discussions with industry participants regarding additional potential joint ventures, but these talks have been slowed by the impacts of the coronavirus (COVID-19) pandemic. “While we are encouraged by efforts to reopen the global economy, the pace and the scope of the reopening is uncertain at this time and may extend well into 2021. In addition, the energy industry is going through a period of significant financial restructuring that has been accelerated by the impacts of the pandemic,” Teague said.

Gross operating margin from EPP’s NGL pipelines and services segment was flat at $1 billion for second-quarter 2020 and 2019. Gross operating margin from the partnership’s crude oil pipelines and services segment by contrast increased 24%, or $121 million, to $634 million for second-quarter 2020 compared with second-quarter 2019.

These gains, however, were largely cancelled out by a nearly $100-million drop in gross operating margins for the company’s natural gas pipelines and services segment, with transportation volumes falling nearly 13%. Petrochemical and refined products services’ gross operating margins were off even more sharply, falling to $192 million for second-quarter 2020 from $305 million for second-quarter 2019, primarily on lower propylene sales volumes and margins.

EPP’s capital spending in second-quarter 2020 totaled $910 million, $836 million of which was on growth projects. The company projects total 2020 spending on growth capital projects to total $2.5-3.0 billion, tapering off to $2.3 billion in 2021 and $1 billion in 2022. These estimates to do not include capital investments associated with EPP’s proposed deepwater offshore crude oil terminal (SPOT), which remains subject to government approvals. The company said it does not expect to receive this approval in 2020.

Enterprise has $6.6 billion of major capital projects under construction, the bulk of which ($4.7 billion) are scheduled for completion in 2021 or later. These include:

• Gillis lateral and Acadian Haynesville natural gas pipeline expansion. Construction of an 80-mile, 1-bcfd pipeline starting near Cheneyville, La., on EPP’s Acadian Haynesville extension to third-party interconnects near Gillis, La.
• Permian basin natural gas gathering and residue lines.
• Midland and ECHO crude tank expansions totaling 2.4 million bbl (to support M2E3).
• Midland-to-ECHO 4 pipeline with an initial capacity of 450,000 b/d, expandable to as much as 540,000 b/d.
• PDH 2 plant to be built with LyondellBasell Industries NV at Enterprise’s Mont Belvieu complex. Will consume 35,000 b/d of propane and produce as much as 1.65 billion lb/year of polymer-grade propylene.