Enterprise Products Partners L.P.

Good day, and welcome to the Q1 2021 Enterprise Products Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, please press star 1 on your telephone keypad. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Randy Burkhalter, VP of Investor Relations. Please go ahead, sir.

Thank you, Christy. Good morning, everyone, and welcome to the Enterprise Products Partners call to discuss first quarter 2021 earnings. Our speakers today will be Co-Chief Executive Officers of Enterprise's General Partner, Jim Teague and Randy Fowler. Other members of our senior management team are also in attendance for the call today. During the call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, based on the beliefs of the company as well as assumptions made by and information currently available to the enterprise's management team. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. And so with that, I'll turn the call over to Jim. Thank you, Randy. Thank you.

Our businesses continued to perform extremely well during the first quarter. We reported $2.2 billion of adjusted EBITDA. Distributed cash flow was $1.7 billion, and a 1.8 times coverage, and we retained $700 million. Andy's going to get into all the numbers deeper. We couldn't be prouder of our people. Time and time again, whether they're faced with a financial crisis or over 50 inches of rain from Hurricane Harvey at Montbellevue, a combination pandemic global price war that was immediately followed by a record Gulf Coast hurricane season, or a historic winter storm that shuts down virtually the entire state, our people prepare, adjust when needed, and they execute and make things happen. And for that, we are extremely grateful. Relative to the winter storm, forecasters did a great job of calling for a major, even historic event at least a week in advance. As the storm developed, every county in Texas, as you know, was under a winter storm warning. It rose in supplies across the state and affected the entire energy value chain. It impacted much of the generating capacity across the state, at one point even some of our nuclear. In spite of what you've heard in the press, Texas ended up counting on natural gas as wind generation dropped to near zero at the height of the storm. Our people prepared, packing our pipelines, buying extra gas to prepare for freeze-offs, scheduling our assets, and staging themselves in hotels and on cots at our plants. Most of our Texas assets, including our assets at Montbellevue and the Ship Channel, were offline at the height of the storm, mostly intentionally, we work to make BTUs available through deep rejection, bypass, and plant shutdowns. We sell natural gas to electricity generators, natural gas utilities, and industrial customers to assist them in meeting their needs. Our gas business, which includes pipelines, gas storage, small gas storage, and gas marketing is integral to what we do in many of our other businesses. but it's nowhere near the size of, say, a Kinder Morgan or Energy Transfer. During the freeze, our natural gas team, including the commercial gas control and gas marketing and schedulers, worked tirelessly. They knew to start preparing long before the temperatures dropped. Then they worked around the clock for days to deal with the problems and the opportunities, and it shows in our results. As to power, our people took proactive steps to minimize our exposure to $9,000 a megawatt hour power through participation in ERCOT's LARS program, which redeploys industrial power supplies to human needs and by voluntary shedding a significant amount of load. Today, Texas and Louisiana Gulf Coast petrochemical plants and refineries have completed repairs and have increased rates with both industries realizing some of the best margins we have ever seen. As we emerge from COVID-related lockdowns, global demand continues to improve for crude, NGLs, primary petrochemicals, and refined products. Diesel demand actually exceeds pre-COVID norms in much of the world, and gasoline demand is picking up, already exceeding 2019 levels in some countries. Downtown Houston is far from fully occupied, But traffic in this city is at times already back to what some term is awful. For the first time in my life, I think traffic jams are beautiful. Since April the 20th, 2020, we have been outspoken about why we felt oil prices would go up dramatically. While economic recoveries aren't uniform, when you look at the world's largest economies, demand has moved up and all indications are that even Europe isn't far behind. Moving on to capital, we continue to expect our growth in capital investments for 21 to be $1.6 billion and another $440 million for sustaining capital. The rest of 21, we continue to be on schedule to complete the expansion of our Acadian gas system to Gillis, Louisiana, which serves LNG markets, the expansion of our ethylene and propylene pipeline systems, and the construction of our natural gasoline hydrotreater. Our growth capital in 22 and 23 projects currently sanctioned is $800 million and $400 million, respectively. Longer-dated capital commitments are largely around our PDH-2 plan, expected online in 2023. We know that we're in the show-me state for this project because of the difficulties we had in our first PDH. I will tell you, I have a high level of confidence that PDH 2 will be highly successful and will generate consistent cash flow. As to PDH 1, we recently completed a 46-day turnaround. It was on time, and it was under budget. The restart went exactly as planned, and the unit is operating above design capacity. Sometimes I read reports that make me think investors are worried that we're running out of projects. And then the next report I pick up makes me think investors are worried that we're going to spend a dollar. We have never been afraid of opportunity, but we definitely respect this part of the cycle and our expectation for returns on new projects have moved forward. Going forward, I think you should probably think about our capital run rate as somewhere between $1.5 and $2 billion. I hear a lot about energy evolution. Note that we don't say transition. We're thinking of things like hydrogen and carbon capture utilization and storage, not just as threats but as potential opportunities. Angie Murray, our Senior Vice President of Technology Services, has taken on additional responsibilities around a deep dive technical analysis of low carbon technologies currently under discussion. Over the last two years, Angie and her team have worked closely with operations and our big data team, identifying several areas to significantly cut our operating, in some cases, our capital costs. What we're finding is these are not one-time hits, but are to be thought of as continual improvement. In addition to those responsibilities, Angie's role has been expanded to include a focus on evolutionary technology and for lower carbon opportunities. We have to have a strong technical focus on these opportunities. For example, for hydrogen, outside of the rather large presence we have today through our petrochemical assets, ING's evolutionary technologies team, that's a mouthful, Randy, is leading the initiative to research and analyze where we might go next in applications for things like transportation and storage. And your team is also responsible for helping us understand the technology behind sequestering our own carbon. In addition to hydrogen and carbon capture, there are other new low-carbon areas that could be a fit. For example, as a member of the Alliance to End Plastic Waste, we are clearly interested in the different technologies used to recycle plastics and what opportunities might exist for enterprise in handling the resultant products. As to new initiatives, we always have commercially sensitive things we're working on, but most of the things we're working on expand and, in some cases, converts what we already have. Think in terms of product upgrade and repurposing underutilized assets done in a manner that gives our customers new markets. Some of these initiatives even fit the definition of energy evolution. However, profitability will always be a prerequisite. Things are never typical, but what has become typical is regardless of the environment, enterprise people perform. The groundwork for our performance today was created 5 to 10 years ago, and what we will become in 5 to 10 years is being created today. A natural extension of our value chain in 5 to 10 years could very well be things like hydrogen transportation and storing, storage are sequestering carbon and transporting, storing, and upgrading the byproducts produced from recycled plastics. While nothing is off the table, demand for fossil fuel and its derivatives will continue to grow, and that will remain our foundation. And with that, Randy, you got it.