Enterprise Products Partners L.P.

Thank you for standing by, and welcome to Enterprise Products Partners LP's third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. I would now like to hand the call over to Libby Strait, Senior Director of Investor Relations. Please go ahead.

Libby Strait Good morning and welcome to the Enterprise Product Partners conference call to discuss third quarter 2024 earnings. Our speakers today will be Co-Chief Executive Officers of Enterprises General Partner, Jim Teague and Randy Fowler. Other members of our senior management team are also in attendance for the call today. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 based on the beliefs of the company as well as assumptions made by and information currently available to enterprises management teams. 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-booking statements made during this call. With that, I'll turn it over to Jim.

Thank you, Libby. Today reported adjusted EBITDA of $2.4 billion for the third quarter compared to $2.3 billion for last year's third quarter. It generated $2 billion of distributable cash flow, providing 1.7 times coverage In addition, we retained $808 million of DCF. Our retained DCF totals $2.3 billion year-to-date. Operationally, we set five volumetric records, including 7.5 billion cubic feet per day of inlet natural gas processing volumes and 12.8 million barrels a day of crude oil equivalent pipeline volumes. We've benefited from contributions from the three new natural gas processing plants and wide natural gas price spreads between Waha and other market hubs. We're on track to complete construction of two additional processing plants in the Permian, our Bahia pipeline, Fract 14, phase one of our Natus River NGL export terminal, and the last phase of our Morgan Point Terminal flex expansion in 2025. And we'll have one additional process plant coming online in the Delaware in 2026. These projects provide visibility to new sources of cash flow for our company and enhance and expand the NGO value chain at the core of our business. We also announced yesterday that we completed the acquisition of pinyon midstream. These assets are highly complementary to our Permian processing footprint by providing treating services to a prolific area of the basin that generally has been infrastructure limited to the lack of sour natural gas treating and acid gas injection capacity. Opinion assets are also a very strategic addition to our NGO value chain that touches everything from the wellhead to the water. I'd be remiss if we didn't recognize the tireless efforts of over 200 of our employees at Montbellevue who rolled from our most comprehensive turnaround for the PDH-1 plant right into a turnaround for our PDH-2 plant. Our employees completed these 24-7 turnarounds with extreme diligence and without any lost-time accidents. We believe this time and investment will result in higher utilization rates and performance for both of these facilities going forward, and we look forward to their contributions in 2025. We're excited about the number of inbounds that we're getting related to new natural gas demand in Texas from both data centers and new gas-fired power plants that would be built under the Texas Energy Fund. There are a lot of people talking about exposure to data centers. It seems that it's a very sexy thing to say, and everybody who has a piece of pipe in Texas is talking it up. The reality is there's a very small list of companies with pipeline and storage assets best positioned to benefit from this build-out, and enterprise is one of them. It is difficult to quantify the ultimate demand and timing at this point, not knowing which projects will go forward. That being said, it is one of the most promising signals we've seen in natural gas in a long time, and we're looking forward to serving this new influx of demand. In enterprise, we take pride in the fact our organization is not siloed. Everyone is important. We all pull in the same direction every day. The dedication, commitment, and creativity of all our employees has always been the key to our success. We always strive to get better. We operate an integrated value chain, providing a wide range of services from the wellhead to the water. Our systems are highly automated and provide us with billions of data points. Each link in that chain presents an opportunity to provide a service, earn a fee, or enhance profitability by enhancing our margins or reducing our costs. Over the last five years, we have developed a very talented big data and data science team that works closely with all areas of our company. We're now using big data for everything from predictive maintenance to market analytics to asset optimization. One of the many examples is our pipeline controllers now use real-time profit optimizer programs to help determine when and how they run compressors and pumps based on real-time power and fuel cost. Data and the insights it can provide in many respects is the new currency. And our proprietary data will forever be an opportunity for enterprise. As we sit in the final quarter of 24 and head into 25, our work is not done. Each year presents new opportunities and new headwinds. We built a network of assets and a culture that delivers strong results throughout business cycles, administrations, and market conditions. Our company is built for the long run. As always, we've never been more excited for what the future will bring for our company. With that, Randy.

Thank you, Jim, and good morning. Starting with income segment items, net income attributable to common unit holders was $1.4 billion, or $0.65 per unit, for the third quarter of 2024. This is an 8% increase over the third quarter of 2023. Our adjusted cash flow from operations, which is cash flow from operating activities before changes in working capital, increased 4% to $2.1 billion for the third quarter of 2024, compared to $2 billion for the third quarter of last year. We declared a distribution of 52.5 cents per common unit for the third quarter of 2024. which is a 5% increase over the distribution declared for the third quarter of last year. This distribution will be paid November 14th to common unit holders of record as close of the business on October 31st. In the third quarter, the partnership purchased approximately 2.6 million common units off the open market for $76 million. Total repurchases for the trailing 12 months were $252 million or approximately $9.1 million enterprise common units, bringing total purchases under our buyback program to approximately $1.1 billion. In addition to buybacks, our distribution reinvestment plan and employee unit purchase plan purchased a combined 6.5 million common units on the open market for $181 million during the last 12 months. and this includes 1.6 million common units on the open market for $47 million during the third quarter of 2024. Of note, 48% of our employees participate in the unit purchase plan. At Enterprise, we really do eat our own cooking. For the 12 months ending September 30, 2024, Enterprise paid out approximately $4.5 billion in distributions to limited partners, Combined with the $252 million of common unit repurchases over the same period, our total capital return was $4.8 billion, resulting in a payout ratio of adjusted cash flow from operations of 56%. We returned roughly $1 billion more than our growth capital expenditures were for the same period. Total capital investments in the third quarter of 2024 were $1.2 billion, which included $1.1 billion for growth capital projects and $129 million of sustaining capital expenditures. Our expected range of growth capital expenditures for 2024 remains unchanged at $3.5 to $3.75 billion. We have received overwhelming interest from our producer customers following our recent acquisition opinion midstream. As Jim noted, these assets not only enhance our processing footprint, but allow us to attract more acreage in the Delaware Basin. Additionally, yesterday we announced a contract with Oxy to potentially build a CO2 pipeline that would serve the Houston Industrial Corridor. We are updating our 2025 estimated growth capital expenditure range to $3.5 to $4 billion to encompass potential growth opportunities in connection with these announcements. Sustaining capital expenditures are expected to be approximately $640 million in 2024, which is higher than our original estimates, primarily due to costs associated with the turnaround of the two PDH facilities. As of September 30th, 2024, our total debt principal outstanding was approximately $32.2 billion. Assuming the final maturity of our hybrids, the weighted average life of our portfolio was approximately 19 years. Our weighted average cost of debt is 4.7%, and approximately 98% of our debt was fixed rate. Our consolidated liquidity was approximately $5.6 billion at the end of the quarter, This includes availability under our credit facilities and unrestricted casualty. Our adjusted EBITDA was $2.4 billion for the third quarter and $9.8 billion for the 12 months ended September 30, 2024. As of that date, our consolidated leverage ratio is 3.0 times on the net basis when adjusted for the partial equity treatment of our hybrids and reduced by the partnership's unrestricted cash on hand. Our leverage target remains, our range remains 2.75 to 3.25, and at 3.0 times, we're in the middle of that range. Living with that, we can open it up for questions.

Thank you, Randy. Operator, we are ready to open the call for questions.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. Please limit yourself to one question and one follow-up or two questions to allow everyone the opportunity to participate. Please stand by while our first question comes from the line of Theresa Chen of Barclays. Your question, please, Theresa.

Good morning. I wanted to follow up on Jim's comments about the data center and power demand theme. Just how do you see enterprise participating in this, and if you have any color details on commercial discussions to date?

Hi, Theresa. This is Natalie. As Jim said, we've been inundated with data center demand infrastructure players that likely exceeded the BCS a day of demand in the next several years. And I think that's probably for a couple of different reasons. Some of them have shared with us that no longer bringing power to data centers, rather data centers going to power sources. And as you know, we've got several pipelines in the Dallas, Fort Worth area and San Antonio. And just a couple of facts that I think are interesting. If you think about it, Dallas area data centers ranked fourth in power today, but they're second in the most planned power. And then San Antonio is even more impressive. It's 17th in power, but ninth in most planned power. So if you think about it that way, there's some regions that are probably losing market share to San Antonio and Dallas, and we stand in a good spot to be able to serve those centers.

Thank you. And then related to the recent Pinion acquisition, can you provide some details on how you plan to integrate it across your NGO assets and the ability you have to roll out treating services beyond the immediate to midstream acreage and just the long-term value creation you see from these assets, please?

Natalie, you're still up.

Yes. I think you can think of it this way. We won't treat Pinion any differently than our integrated GMP assets, there won't be many intruding deals behind pinion that don't come with processing deals to serve the integrated value chain.

It leads to more organic growth through processing.

Yeah.

Thank you.

Thank you. Our next question comes from the line of Jean Ann Salisbury of B of A. Your question, please, Jean.

Hi, good morning. Ethane storage is full. There's no new demand until UNET's export facilities come online next year. Can you kind of talk about how you see this resolving? Do you see a big step down in ethane recovery? Would that change your growth rate the next few quarters? And is there kind of a positive offset to that for enterprise in your portfolio?

Hi, Jan. This is Tug Hamley. As far as recoveries and rejection, that'll balance the market. You know, regionally, there's other places other than the Permian Basin or the gas base. It doesn't make sense to recover necessarily or further to transport to market. As far as opportunity set for us, it's going to lead to some positive storage opportunities on collecting Contango.

Okay, that makes sense. And then my follow-up is about the TW products line. Is this the final state of the TW product system? I think you said in the release that it's 20,000 barrels a day of truck loading capacity in Utah. Can the pipe do more than that if you add truck loading capacity, or should we think about this as being the end state of the system?

Hey, Gina Ann, it's Justin. No, we have more capability to add truck wax. In fact, we're doing that right now in our Permian terminal because our terminal is full. So as we identify additional demand and our demand further up system continues to ramp, we'll look for those deep bottom making opportunities to take advantage of it.

Okay, great. Very clear. I'll leave it there. Thanks.

Thank you. Our next question comes from the line of Spiro Dunas of Citi. Your question, please, Spiro.

Thanks, operator. Morning, everybody. I want to go back to the opinion really quickly. Maybe if you just walk us through your decision to buy versus build there. Just curious if that was in any way reflective of some sort of bottleneck on the treating side in the basin.

I guess I'll start, Natalie. First of all, we had to build Greenfield. We were looking at three years, if I'm not mistaken. We missed some opportunities because we didn't have this service, so we didn't get the platform, and it was the easiest, quickest way to get it.

That's it.

Does that answer it, Sparrow?

It does. I appreciate that. The second question, just maybe sticking with New Mexico, I guess last week there was some news headlines just around a new setback rule that could come into play. I know this can pop up from time to time, and it sounds like at least for now there's not much to do around it. But just curious maybe to get your all's view on how you think about the potential impact there if something like that comes into play.

I don't know. I didn't hear the question, Tony.

Setbacks in New Mexico? Yeah, setbacks in New Mexico.

I'll speak for myself, and then I'll speak for myself from a fundamental standpoint, and then, Natalie, you address it. I think the industry is very firm and has always said, tell us what the rules are, and we'll figure out how to adjust to them. Natalie, I haven't heard, and maybe you have or have not, anybody say that they're doing anything other than studying these rules. It certainly, from the meetings I've been in, hasn't changed people's plans at this point. I think the other thing to add to that is remember that we drill horizontally laterals that may be, you know, three or four miles. So I'm confident from a fundamental standpoint that the industry is going to be able to adjust once they know what the rules are. Are you hearing anything different?

Nothing different. I think it's true to speculate on what impacts it will have and nothing more than commentary from a few New Mexico producers.

Great. I appreciate the color. Leave it there. Thanks, team.

Thank you. Our next question comes from the line of Jeremy Tonette of J.P. Morgan. Your question, please, Jeremy. Hi. Good morning.

Good morning.

Just wanted to touch base with Tony here on, I guess, more on the macro outlook and the I guess, producer-customer conversations as well as what the macro team sees as far as production trends at this point in time, given the volatility we've seen in commodity prices?

Yeah, this is Tony. I'll start with it. You know, I think as long as we've been publishing forecasts, this is maybe the second or third time that we've actually republished mid-year. And that's because what we're seeing both in traditional benches and new targets to gassier benches. You know, when you look at EIA numbers, I'll kind of go ahead and go there. I understand that's a very hard thing to set your watch to. That's not what we use. You know, they're trying to get better at it, but they're making slow progress. What we said in the Permian Basin, there's been a lot of noise also relative to weather in the Bakken and in the Gulf of Mexico relative to allergies. So let's go to what's stable and what's the large thing that moves the number, and that's the Permian Basin. We said that over a three-year period, just looking at black oil, that we would have about 1.5 million barrels a day of growth over that three-year period. For 2023, we're at about 750,000 barrels. We think that that number for 2024 will be 350,000 to 400,000 barrels. And from what we're seeing as far as turn in line from our producers, it's likely that when it's all said and done, that number is going to be very heavily weighted towards the second half of the year. So it's not a long putt. As a matter of fact, it's what we expect that we will still permanently meet that goal of probably a million and a half barrels in 2025. That said, you can look at our forecast, and the one thing that is changing and likely to change is the commitments that producers are making to gassier basins. And Natalie, I'll let you take it from there.

I agree. I think we often see it in our production plans from our producers, and either PDP isn't coming off as expected, or let's just say some of the declines are holding a little bit longer. But definitely gassier, even if on the order of, you know, 10%, sometimes they miss it by that order of magnitude. We see it time and time again. Not large numbers, but definitely something to keep up with.

Got it. That's helpful there. Thank you for that. And maybe shifting gears a little bit here with FAHIA, it looks like the timeline shifted a little bit there, so just wondering if you could update us on project development there, and also just our current thoughts on Permian NGL pipeline egress, how you see that shift?

Hey, Jeremy. This is Justin Kleider. So, just minor delays in our expected timing on permit to construct. causing the delay from the first half into the third quarter. On the commercial development front, I would say, as you saw in our latest deck, Tony's updated NGL forecast paints a very different picture for overall industry utilization. I think by 2028 now, the updated supply numbers have us upwards of 90% utilized as an industry. So we're still working the same playbook as we talked about in prior quarters around how we're developing commercially there. But it really just comes down to how that incremental supply gets contracted, whether that be a combination of additional GMP assets that Natalie alluded to earlier or continuing to pursue third-party NGLC.

Got it. That's helpful. Thank you.

Thank you. Our next question comes from the line of Michael Bloom of Wells Fargo. Your line is open, Michael.

Thanks, Ted. Good morning, everyone. I wanted to ask about the announcement yesterday on the CO2 pipeline project with Oxy and Why don't you just confirm this is new pipe, you're not repurposing, and get a sense for how many miles of pipe are we talking about, and would you expect to get your kind of typical midstream contract structure and typical midstream return on a project like this?

Good morning, Michael. This is Bob Sanders. So the contract with 1.5 is a fairly straightforward transportation agreement. When 1.5 goes to FID, they will tell us what emitters to connect to so we know what to design for. It is new pipe because it is ANSI 900 pipe. It's a high-pressure pipeline system. We expect 1.5 to FID sometime in the first half of 2025, and at that point we'll know what the capital is and the fee will be set accordingly.

Great. Great. Thanks for that. And then I just want to ask about LPG export dock spot rate dynamics. I guess the rates have increased in recent months. I want to get a sense how full the docks and your docks specifically from that perspective, are you able to capture any of these higher spot rates or are you basically fully contracted?

Yeah, this is Tug. So we've talked about it in a prior earnings call, but we did a de-bottlenecking project at the ship channel that's provided us higher capacity. So right now, we have anywhere between two to three spot cargoes per month, and we are capturing those higher values, call it mid-20 cents per gallon.

Great. Thank you. Thank you. Our next question comes from the line. of Neal Dingman of Schuist. Please go ahead, Neal.

Morning. Thanks for the time. My first question is on your petrochem specifically. Are you all continuing to expand the ethylene and propylene systems? And I'm just wondering, guys, do you continue to believe more export capacity will be needed there?

Hey, Neal. It's Chris Dannen. We are continuing to grow particularly our ethylene pipeline system. So if you remember, that pipeline system didn't exist before 2019. And we've built a pretty substantial system, and we plan to continue to grow that. And then in terms of our exports, we have an expansion underway. It's at our Morgan's Point dock, and that'll come online. The first phase of that will be online at the end of this year.

Chris, talk about real quick what you're seeing in Europe. would you think that creates for us?

Yeah, I think, you know, one of the growth opportunities that we see for ethylene exports in particular is Europe. With the economics that those crackers have, one, they're quite a bit smaller, so they don't have the economies of scale that we have here in the U.S. And then secondly, just the overall feedstock, you know, it's a whole ethane versus naphtha or natural gas versus crude kind of fundamentals there. So we expect to see And we've heard from a lot of the chemical companies that they're doing strategic reviews of their European assets. So we expect to see some closures, and we expect that to lead to additional ethylene exports going that way.

Great details. Thanks, Frank. And then my second is just on marketing specifically. It seems like Waha continues to be quite volatile, so I'm just wondering, based on that, can we assume the marketing business continues to remain strong for you all?

Yes, we have roughly 370 million a day open on that West to East Waha spread, so we do expect that to continue to contribute.

Great, Peter. Thank you.

Thank you. Our next question comes from the line of Keith Stanley of Wolf Research. Your question, please, Keith.

Hi. Thank you. Good morning. first just uh curious for an update on commercial conversations on the spot project i think there was a quote a week or two ago from a conference of you know trying to get a first customer to sign up for that project just an update on any momentum you're having there you want to tell you hey keith this is jay bainey uh yeah just related around commercial conversations uh they're they're quite extensive um

and in various degrees of conversation, anywhere ranging from, you know, we're working through definitive agreements, changing term sheets. I'd say a large portion of our customer base are currently just evaluating the cost inefficiencies related to ship-to-ship transfers and how that affects their business, both their call it net back as American producer expenses or ultimately delivered price for international customers. And so we expect to hear some of that feedback here, call it the end of this quarter, early first quarter.

Thanks for that. Second question, admittedly not sure there's a great answer to this necessarily, but the valuation gap between the C-Corps in the space and the MLPs is at a record high above anything I can recall. Are there any potential ways the company could capitalize on that? I don't know if it's selling assets at higher valuations or other ways to respond to the market seemingly valuing C-Corps much more highly than MLPs these days.

Keith, this is Randy. I don't think there's any quick solution or answer there. I think coming in and trying to play the game of selling assets at a higher valuation is somewhat short-sighted, especially when you come in and you look at the depreciation recapture that comes and it gets pushed down to all your limited partner. All it becomes is a tax event for your limited partners and I don't know what actually you've accomplished. So, you know, we've seen You know, two or three years ago, I think it was near these levels, and then we saw the two compressed. But generally, when there's this big of a difference in asset classes, normally the market solves it one way or the other. Thank you.

Thank you. Our next question comes from the line of John McKay of Goldman Sachs. Please go ahead, John.

Hey, Al, thanks for the time. I just want to maybe do two quick clarifications. First one is, Randy, this is to you, I guess, just on that last comment, is the UPSI idea still out there, or is there any reason you guys have kind of, you know, permanently put that to the side at this point?

No, I appreciate the thought there. Again, I think that's another... you know, sort of the devil's in the detail there. Number one, now you've got, you know, you would have two securities outstanding. You need to build liquidity up in that second security. And, oh, by the way, then what do you do with use of proceeds? So I think, you know, and if I come in and look over time, there's not really been, you know, and there's been examples, whether it's the upseas or whether it's been the, oh, gee whiz, the... the high units that were done way back, you know, 20 years ago, and you really never saw that much differentiation, whether it was the high units, the institutional class units of a partnership that was more institutional investor friendly, or whether it was the upsee and the underlying MLP. So to us, that adds a lot of complexity, and really you don't get that much value for your buck.

All right, that's clear. Appreciate that. Second quick follow-up. Appreciate the comments and all the work done on the PDHs. I just want to clarify, are both up and running fully now? Is this like a fourth quarter run rate going forward? Is this a first quarter 25? And then maybe if you could just remind us maybe what those two assets in aggregate could add from an ongoing cash flow basis, that'd be great.

They're up and running, both of them. running at full rates, if not higher. And Chris, I'd say it's in the neighborhood of $200 million. That's correct. All right, that's good.

Congrats on getting that done, and thanks for your time.

Thank you. Our next question comes from the line of AJ O'Donnell of TPH. Your question, please, AJ.

Hey, good morning. Thanks for taking my question. Just a quick one on Matterhorn, with that pipeline now running about a BCF or over a BCF a day, curious if you guys have seen a jump in flush production into your system in Q4, or if majority of the pipeline volumes are just flow shifting around the basin or redirected gas.

I don't think we've seen a flush production yet, Evelyn, Natalie.

Okay. Maybe going back to the capital budget then, just trying to understand on the increase in the 25 budget, I was hoping maybe you could bribe just a little bit of a different color on the types of the projects you're seeing with Pinion. I'm just curious if there's any more of that to potentially be announced in the 25 budget, or does that seem a little bit further off?

Natalie, are you going to have pinion projects next year?

Yes, we'll do our job, we will.

Natalie says yes.

Okay, thanks, guys.

Thank you. Our next question comes from the line of Manav Gupta of UBS. Your question, please, Manav.

Hi, good morning. You guys did a very good job of explaining some of the 2025 growth projects, you know. Help us understand the pipeline is pretty strong, you know, whether it's Menton, West 2, or Nietzsche's River. How should we think about the key growth projects for 2026 at this stage?

Yeah, Manoj, thanks for the question. I think we're still at the point where... And we try to point this out in our supplemental slides for earnings. When you come in and you look at the projects that have been FID'd, you know, I want to say that the runoff in 2026, what we have remaining to spend on currently FID'd projects is probably about $1 billion, $1.2 billion. So if you would, in 2026, we have room, you know, that we put in there that we think will probably be in the range of $2 billion. Maybe it's upward to 2.5, but we have room for development of other growth-oriented projects between now and then. And that's where, you know, we think 2024 and 2025 is really a period of elevated CapEx, and that will come back in and more on a longer term basis, see that come back down to around two, two and a half.

Perfect.

And you saw this, and again, I'll come back in, I'm sorry. You sort of saw the same thing in 2018, 2019. In those years, we were about $4 billion in growth capex. And again, those had some large projects and some step changes in capacity. And then you saw our growth capex moderate back down, and we think the same thing will happen once you get out to 2026.

Perfect. My quick follow-up is there was a little bit of a step-up in buybacks in 3Q versus 2Q. And again, as you're going through this build-out, how should we think about shareholder returns for the rest of the 2024 or even 2025?

I think, again, with 2024 and 2025 CapEx being at elevated levels, you'll probably continue to see buybacks in that $200 million, $300 million range. I think once we get out to 2026, we'll need to reassess what the opportunities are at that time, and we'll go from there.

Thank you for taking my questions.

Thank you. I would now like to turn the conference back to Libby Strait for closing remarks. Madam?

Thank you, and thank you to our participants for joining us today. That concludes our remarks. Have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.