Enterprise Products Partners L.P.(US:EPD)2023-05-09 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2023, reporting a net income attributable to common unitholders of $1.39 billion and diluted EPS of $0.63 Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $9,687 | $10,598 | | Total assets | $67,325 | $68,108 | | Total current liabilities | $10,410 | $12,265 | | Long-term debt | $27,439 | $26,551 | | Total partners' equity | $26,787 | $26,623 | | Total liabilities and equity | $67,325 | $68,108 | Consolidated Operations Highlights (in millions, except per unit amounts) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total revenues | $12,444 | $13,008 | | Operating income | $1,734 | $1,666 | | Net income | $1,422 | $1,331 | | Net income attributable to common unitholders | $1,390 | $1,296 | | Basic and diluted EPS | $0.63 | $0.59 | Consolidated Cash Flow Highlights (in millions) | Cash Flow Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash flows provided by operating activities | $1,583 | $2,145 | | Cash used in investing activities | $(637) | $(3,532) | | Cash used in financing activities | $(876) | $(1,125) | Note 7. Debt Obligations Total consolidated debt stood at $28.9 billion as of March 31, 2023, following a $1.75 billion senior note issuance and the refinancing of revolving credit facilities Consolidated Debt Obligations (in millions) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total principal amount | $28,871 | $28,566 | | Current maturities of debt | $1,149 | $1,744 | | Total long-term debt | $27,439 | $26,551 | - In January 2023, EPO issued $1.75 billion in senior notes: $750 million due 2026 (5.05% fixed-rate) and $1.0 billion due 2033 (5.35% fixed-rate) Proceeds were used for general purposes, capital investments, and debt repayment, including the March 2023 maturity of $1.25 billion Senior Notes HH6869 - In March 2023, EPO replaced its revolving credit agreements with a new $1.5 billion 364-day facility and a new $2.7 billion multi-year facility, both of which were undrawn as of March 31, 20236064 Note 8. Capital Accounts In Q1 2023, the company repurchased $17 million in common units, retaining $1.3 billion in buyback capacity, and declared a $1.08 billion cash distribution - During Q1 2023, the Partnership repurchased 682,589 common units for $17 million under its 2019 Buyback Program The remaining capacity under the program was $1.3 billion as of March 31, 20237778 - On April 5, 2023, a quarterly cash distribution of $0.490 per common unit was declared for Q1 2023, payable on May 12, 2023 The total payment amounts to $1.08 billion85 Note 10. Business Segments and Related Information Total segment gross operating margin increased to $2.34 billion in Q1 2023, driven by growth in Natural Gas Pipelines & Services despite declines in other segments Gross Operating Margin by Segment (in millions) | Segment | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | NGL Pipelines & Services | $1,212 | $1,225 | | Crude Oil Pipelines & Services | $397 | $415 | | Natural Gas Pipelines & Services | $314 | $220 | | Petrochemical & Refined Products Services | $419 | $404 | | Total segment gross operating margin | $2,342 | $2,264 | - The company evaluates segment performance based on gross operating margin, which is reconciled from the GAAP measure of operating income by adjusting for depreciation, amortization, G&A costs, and other items959798 Note 13. Hedging Activities and Fair Value Measurements The company utilizes derivative instruments to manage interest rate and commodity price risks, terminating treasury lock transactions for $21 million in Q1 2023 and implementing various commodity hedging strategies - In January 2023, the company terminated two treasury lock transactions designated as cash flow hedges for its debt issuance, receiving total cash proceeds of $21 million Gains are reflected in accumulated other comprehensive income and will be amortized to reduce interest expense over the term of the debt117 - Predominant commodity hedging strategies at March 31, 2023, included hedging future purchases and sales for transportation and storage, natural gas processing margins, the fair value of inventory, and power purchases119 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2023 financial performance, highlighting a $77 million increase in gross operating margin, $4.0 billion in liquidity, $1.94 billion in Distributable Cash Flow, and 2023 capital investment guidance of $2.8 billion to $3.2 billion Income Statement Highlights (in millions) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenues | $12,444 | $13,008 | | Operating income | $1,734 | $1,666 | | Net income attributable to common unitholders | $1,390 | $1,296 | Distributable Cash Flow (DCF) (in millions) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | DCF (non-GAAP) | $1,938 | $1,837 | | Cash distributions paid | $1,075 | $1,023 | | Total DCF retained | $863 | $814 | | Distribution coverage ratio | 1.8x | 1.8x | - Total capital investments for 2023 are expected to be between $2.8 billion and $3.2 billion, comprising $2.4 billion to $2.8 billion in growth capital and $400 million in sustaining capital expenditures286 Business Segment Highlights Total gross operating margin rose to $2.34 billion in Q1 2023, primarily driven by significant increases in Natural Gas Pipelines & Services and Petrochemical & Refined Products Services - NGL Pipelines & Services: Gross operating margin decreased slightly by $13 million to $1.21 billion Strong performance in NGL pipelines and terminals, driven by higher export volumes, was offset by lower margins from natural gas processing and NGL fractionation217219226233 - Crude Oil Pipelines & Services: Gross operating margin decreased by $18 million to $397 million, primarily due to a $75 million decline in deficiency revenues from the EFS Midstream System following the expiration of minimum volume commitments235236 - Natural Gas Pipelines & Services: Gross operating margin increased significantly by $94 million to $314 million This was driven by higher average gathering fees in the Rocky Mountains, increased marketing margins, and higher transportation fees on the Texas Intrastate System242243244 - Petrochemical & Refined Products Services: Gross operating margin increased by $15 million to $419 million Growth was led by a $25 million increase in octane enhancement operations and a $16 million increase in refined products pipelines, partially offset by a $28 million decrease in propylene production due to planned maintenance249250252253 Liquidity and Capital Resources The company maintained strong liquidity of $4.0 billion and generated $1.94 billion in Distributable Cash Flow, achieving a 1.8x distribution coverage ratio - At March 31, 2023, the company had $4.0 billion of consolidated liquidity, comprising $3.9 billion of available borrowing capacity and $76 million of unrestricted cash259 - The average maturity of EPO's $28.9 billion in consolidated debt obligations was approximately 19.9 years at March 31, 2023263 - For Q1 2023, the company generated $1.94 billion of DCF, which covered its cash distributions to common unitholders by 1.8 times, resulting in $863 million of retained DCF281 Capital Investments The company has $6.1 billion in growth capital projects planned through 2025, with 2023 investments forecasted between $2.8 billion and $3.2 billion, and Q1 2023 expenditures totaling $653 million - The company has approximately $6.1 billion of growth capital projects scheduled for completion by the end of 2025, including new natural gas processing plants, an NGL fractionator, and expansions of export capacity286 Capital Investments (in millions) | Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Growth capital projects | $542 | $265 | | Sustaining capital projects | $111 | $84 | | Total Capital Expenditures | $653 | $349 | | Cash used for business combinations | $0 | $3,204 | - The increase in Q1 2023 growth capital spending was primarily due to higher investments in natural gas processing and gathering projects in the Permian Basin289 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from commodity prices and interest rates using derivative instruments, with sensitivity analyses illustrating the impact of price changes on derivative portfolios - The company uses derivative instruments such as futures, forward contracts, and swaps to manage risks associated with commodity prices and interest rates304 - A sensitivity analysis is used to measure the change in fair value of derivative portfolios based on a hypothetical 10% change in underlying prices, which would normally be offset by a corresponding change in the value of the hedged item305 Fair Value of NGL & Refined Products Portfolio (in millions) | Scenario | March 31, 2023 | | :--- | :--- | | Fair value (no price change) | $(146) | | Fair value (10% price increase) | $(190) | | Fair value (10% price decrease) | $(102) | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting during Q1 2023 - The company's management, including its principal executive and financial officers, concluded that disclosure controls and procedures were effective as of the end of the period316319 - No changes in internal controls over financial reporting occurred during Q1 2023 that have materially affected, or are reasonably likely to materially affect, these controls317 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, including environmental matters with potential sanctions over $0.3 million, which are not expected to materially impact financial statements - The company is a defendant in various legal proceedings arising from normal business activities, including regulatory and environmental matters321 - Specific disclosed matters include Notices of Violation from the EPA regarding facilities in Louisiana and Texas, a civil penalty demand related to a Colorado gas plant, and Notices of Enforcement from the Texas Commission on Environmental Quality The company does not expect these to be material323326 Item 1A. Risk Factors This section refers investors to the comprehensive risk factors detailed in the company's 2022 Annual Report on Form 10-K for understanding potential deviations from forward-looking statements - Investors are referred to the detailed risk factors disclosed in the company's 2022 Form 10-K325 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2023, the company issued 18,076 preferred units as an unregistered PIK distribution and repurchased 682,589 common units under its buyback program - The company made a quarterly paid-in-kind (PIK) distribution of 18,076 preferred units in Q1 2023, which was an unregistered issuance328329 Issuer Purchases of Equity Securities (Q1 2023) | Program | Units Purchased | Average Price Paid per Unit | | :--- | :--- | :--- | | 2019 Buyback Program | 682,589 | $24.89 | | Vesting of phantom unit awards (tax withholding) | 2,016,542 | $26.78 | Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None334 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including credit agreements, corporate governance documents, debt indentures, and Sarbanes-Oxley Act certifications - Key exhibits filed include the March 2023 364-Day and Multi-Year Revolving Credit Agreements and related Guaranty Agreements351 - Certifications by the Co-CEOs under Sections 302 and 906 of the Sarbanes-Oxley Act are included as exhibits352