Enterprise: A Blue Chip among MLPs

02/27/2017 7:00 am EST


Peter Staas

Managing Editor, Capitalist Times and Energy & Income Advisor

Enterprise Products Partners LP (EPD) offers exposure an impressive array of other upside drivers that should play out over the next few years, explains Peter Staas, contributing editor to Conrad's Utility Investor.

The blue-chip MLP stands to benefit in coming quarters as ethane exports from its Morgan Point facility on the Houston Ship Channel ramp up.

Equally important, the partnership has amassed an industry-leading fractionation position at Mont Belvieu and boasts an impressive portfolio of NGL pipelines that should enjoy solid throughput growth as ethane recovery rates increase.

Although the conservatively run MLP tends to favor fee-based midstream assets, its gathering and processing assets would also enjoy improved profitability from reduced ethane rejection.

During Enterprise Products Partners' third quarter earnings call, management highlighted the value of its integrated systems while discussing its plans to construct another gas-processing plant in the Permian Basin as part of its joint venture with Occidental Petroleum Corp. (OXY).

Natural gas liquids produced by this plant will flow through the MLP’s Chapparal pipeline to the midstream giant’s fractionators on the Gulf Coast.

Management has estimated that increasing ethane recoveries could drive a 5 to 10 percent uptick in Enterprise Products Partners’ operating cash flow. And this projection says nothing about the potential arbitrage opportunities that could emerge over the next 18 to 24 months.

Inexpensive ethane in the Marcellus Shale could create sufficient demand for Enterprise Products Partners to expand its ATEX ethane pipeline, which runs from the Marcellus Shale to the Gulf Coast.

Finally, Enterprise Products Partners’ valuable dock space on the Gulf Coast — one of the highlights of its purchase of Oiltanking Partners LP several years ago — gives the partnership a leg up on developing export capacity for propylene and other chemical products.

Other near-term upside drivers include potential deleveraging after a major investment campaign and the potential for strong inflows into MLPs by investors seeking exposure to the recovery in US oil and gas production.

As the largest publicly traded partnership by market capitalization and more than 17 percent of the Alerian MLP Index, EPD would benefit disproportionately from rotation into the space via fund products that offer one-stop exposure.

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