Enterprise Products Partners
Diversified and Built for the Long Run

Enterprise Products Partners L.P. (NYSE: EPD) is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, refined products and petrochemicals. It has featured 24 years of consecutive distribution increases, every year since its IPO in 1998. For more information, visit www.enterpriseproducts.com.

Click HERE to view the Enterprise Products Partners Investor Presentation.

Advisor Access spoke with Jim Teague and Randy Fowler, Enterprise Products Partners’ co-CEOs, about the company’s business environment and outlook, the challenges of the last decade, plans for future growth and the company’s financial strength.

Advisor Access: What is your current business outlook given the geopolitical volatility of the Russia/Ukraine war, post-COVID supply chain disruptions and the Fed increasing interest rates?

Jim Teague: Put simply, energy security has replaced energy transition as the highest priority. Years of underinvestment in the energy and mining sectors, the economic snap back as the world emerges from COVID lockdowns and the impacts of Russia energy curtailments/sanctions have resulted in both strong demand for energy and the recovery in the prices of energy.

Enterprise provides midstream energy services (processing, pipeline transportation, storage, marine terminals) to producers and consumers of crude oil, natural gas, natural gas liquids (NGLs), petrochemicals and refined products. This environment has been constructive for our customers, especially our producer customers that endured almost a decade of challenges including demand destruction from the COVID-19 pandemic, a crude oil price war waged by OPEC+, negative crude oil prices in April 2020, substantial asset impairments, over 250 bankruptcies and a loss of 44% of the workforce in the energy sector broadly.

Our fee-based assets are transporting and processing either record or near record volumes. Our businesses that benefit from commodity prices and price spreads between commodities or regions (between 10% to 20% of our gross operating margin) are also performing very well. Increasing activity by our producing customers is providing visibility to future volume growth, especially in the Permian Basin, Haynesville and Eagle Ford shale regions. These basins provide Enterprise with the opportunity to underwrite and build organic growth projects, such as additional natural gas processing plants in the Permian Basin and natural gas pipeline expansions servicing the Haynesville Shale producers and industrial consumers and LNG markets in south Louisiana. These new projects extend, expand and broaden our existing system.

We also have seen an increase in global demand for primary petrochemicals and refined products. Over the past decade, Enterprise has grown its petrochemical midstream services business by supplying the petrochemical industry with propylene and ethylene it needs to meet the growth demand for propylene and ethylene, which have grown at 1.5X and 1.2X multiples, respectively, of global economic growth. Enterprise is one of the world’s largest producers of polymer grade propylene (PGP), and we provide a wide array of value-added ethylene pipeline, storage and export services.

Randy Fowler: Regarding rising interest rates, we have been preparing for rising rates since the Fed’s first quantitative easing in 2010. During this extended period of Fed accommodation, we were able to reduce our overall cost of debt down to 4.4% while simultaneously extending the average duration of debt out to 21 years. We knew that at some point the accommodative Fed policy would come to an end, so we looked to issue new notes further out on the curve in order to “lock in” low-cost fixed-rate notes. Ultimately, approximately 54% of the debt we issued had maturities of 30+ years. At June 30, 2022, our debt portfolio had an average interest rate of 4.4%, approximately 97% of this debt had fixed interest rates with an average maturity of 21 years. Further, our next maturity is not until March 2023.

Advisor Access: How do you think about energy transition? What are the opportunities and challenges for Enterprise?

Jim: We believe “all of the above” sources of energy (fossil fuel, nuclear and renewables) will be needed for the future energy needs of the world. We also believe “energy addition” is a more accurate term than “energy transition.” Daniel Yergin, the Pulitzer Prize-winning energy historian, recently noted that the world has never really gone through an “energy transition”; it has been “energy addition.” First, coal was going to replace wood and then natural gas was going to replace coal, but today both wood (biomass) and coal are still widely used. In fact, over 35% of the global population, or almost 3 billion people, who live in energy poverty rely on wood, charcoal, coal and animal waste for energy.

Whether it was the intermittency seen in the 2021 Texas winter storms or the energy crisis in the U.K. and Europe, now exacerbated by the 2022 Russian invasion of Ukraine, we believe governments are beginning to recognize the limits of renewable power and what “intermittency” means. The more wind, solar and hydroelectric power sources that societies add to the grid, the more we will also need power generated from natural gas as a reliable backup to avoid blackouts and economic disruption.

To materially reduce global carbon emissions, we believe the most meaningful gains may come from a combination of adding renewable, natural gas and nuclear fueled power sources; greater fuel efficiency and conservation; and carbon capture and sequestration.

Specific to Enterprise, we have been successful in responsibly and economically reducing our carbon emissions intensity by 30% since 2011 and our total direct carbon dioxide emissions by over 13% in the past three years. We look to continue our progress of reducing our carbon intensity.

We see a number of opportunities to use our existing system and competencies to contribute toward reducing the world’s carbon emissions. We continue to invest in capital projects that will further the energy security of the U.S. while also producing products like liquified petroleum gas (LPG, which is propane and butane) that furthers human development, lowers emissions and reduces energy poverty. According to the World Health Organization, approximately 4 million people living in energy poverty die each year, mainly from in home pollution caused by cooking with wood, charcoal and coal. U.S. LPG can help reduce this tragic loss of life.

Enterprise’s marine terminal on the Houston Ship Channel is the largest exporter of U.S. LPG. In addition, our Evolutionary Technologies Team has made tremendous progress this past year to evaluate opportunities to both reduce our own emissions but also assist our customers in managing their carbon footprint. We are excited to see what concepts materialize.

Advisor Access: Enterprise has $5.5 billion of organic growth projects under construction. Can you provide an overview and update on the timing of these projects?

Jim: Im pleased to say these projects remain on schedule and on budget. The majority of these will go into service in 2023, which gives us visibility to new sources of cash flow. The most significant of these projects include our second propane dehydrogenation (PDH 2) facility, our Texas Western products pipeline system, and four additional natural gas processing plants in the Permian Basin. We are particularly excited for our PDH 2 facility to come online next year to support increasing global demand for PGP. Upon completion, we will have a total capacity to produce more than 11 billion pounds per year of PGP, the largest PGP production complex in the world.

Advisor Access: Are post COVID supply chain issues and inflation having a material impact on the costs of these projects and your operating expenses?

Jim: Our procurement team and energy management teams do a great job in helping us manage our capital projects and operating costs, especially in the current environment. We immediately try to lock in as much of the costs of a major capital project as possible when it is approved, and we leverage our size and buying power to realize economies of scale where possible. We actively evaluate labor market trends to be able to hire skilled labor at competitive prices, incorporate multi-year supply agreements, and pre-buy material where available to mitigate inflationary pressures. We also increase inventory stock levels to offset future price increases. A key component of keeping material costs down is long-term, strategic agreements with critical suppliers.

We challenged our organization to unlock massive amounts of data we collect given our operations to provide information that leads to better decisions around cost reduction. Using big data, we analyze real-time power pricing and adjust our operations to reduce energy consumption and power costs based on that pricing. We also use data analytics to assess our procurement spend across the organization. And last but not least, we have escalation provisions in all of our major, long-term contracts designed to mitigate inflationary impacts on energy and operating expenses.

Advisor Access: Over the next five years, which of Enterprise’s business segments do you currently believe have the greatest opportunities for growth?

Jim: The majority of our capital is being allocated to our NGL and petrochemical midstream services segments. These two segments have consistently provided our best returns on capital. We had a goal to surpass $1 billion in gross operating margin in our petrochemical services segment by 2024. We met that goal in 2021! No going back; we are on track to surpass $1 billion again this year. We also see opportunities for our natural gas services segment to support U.S. production growth, as well as growing demand for natural gas for industrial fuel as more supply chains return to the U.S., raw materials for fertilizers, power generation and LNG.

Advisor Access: The U.S. energy sector has been through a challenging decade: enduring an OPEC price war, a once in a century pandemic and now a potential recession. How has Enterprise prospered through this period and how has its financial model changed?

Jim: The first consideration is how we contract our businesses and the quality of our customer mix. Depending on the year, approximately 80% to 90% of our gross operating margin is fee-based. We contract long-term assets with durable long-term contracts. Our new assets are generally underwritten with a combination of long-lived acreage dedications, multi-year contracts (most 10 to 15 years), minimum volume commitments, fee escalators to mitigate the impact of inflation, and/or deficiency fees. We have a strong customer base with approximately 87% of our revenues in 2021 coming from customers with an investment grade debt rating or backed by letters of credit.

Randy: Nothing speaks to this question better than the durability of our cash flows, strength of our balance sheet and financial flexibility. These have enabled us to consistently increase our cash distributions to limited partners throughout economic cycles every year since our initial public offering in 1998. We actively manage our balance sheet and ensure that we not only continue to return capital to our investors but also hold ample liquidity to fund our growth capital projects. More recently, we have substantially self-funded our growth capital investments.

Advisor Access: How do you think about the priorities for Enterprise’s allocation of capital?

Randy: It continues to be an “all of the above” approach: 1) investing in midstream energy infrastructure with attractive, long-term returns on investment and that “bolt on” to our existing system of assets; 2) supporting and growing cash distributions to our partners; 3) opportunistic buybacks of our partnership common units; and 4) maintaining a strong balance sheet and financial flexibility.

Advisor Access: Enterprises most recent quarterly distribution increase was a 5.6% increase compared to the same quarter in 2021. This year, 2022, will mark 24 years of consecutive distribution increases (every year since Enterprise’s IPO in 1998). That’s quite an accomplishment. How do you think about future distribution growth? Is 25 consecutive years a goal?

Randy: Distribution growth is extremely important to us. Let’s call 25 consecutive years of distribution growth an “interim goal.” Our focus is to continue to grow the value of the partnership and its distributions well beyond our silver anniversary. Our general partner and management own approximately 32% of Enterprise’s common units and are aligned with our public partners. We manage the business for the long term while consistently returning capital to our investors. This formula has successfully worked for us. Since our IPO, Enterprise has generated a 14.3% annualized total return (assuming reinvested distributions) compared to a 7.6% annualized return for the S&P 500.

Advisor Access: Thank you, Jim and Randy.

Jim Teague is Director and Co-Chief Executive Officer of Enterprise Products Partners. Mr. Teague has served as Co-Chief Executive Officer since January 2020 and has been a director of Enterprise Products Partners General Partner (GP) since November 2010. He also serves as Co-Chairman of the Capital Projects Committee. Mr. Teague previously served as Chief Executive Officer of Enterprise GP from January 2016 to January 2020, Chief Operating Officer of Enterprise GP from November 2010 to December 2015, and Executive Vice President of Enterprise GP from November 2010 until February 2013. He served as Executive Vice President of EPGP from November 1999 to November 2010 and additionally as a director from July 2008 to November 2010 and as Chief Operating Officer from September 2010 to November 2010. In addition, he served as EPGP’s Chief Commercial Officer from July 2008 until September 2010. He served as Executive Vice President and Chief Commercial Officer of Duncan Energy Partners GP from July 2008 to September 2011. He previously served as a director of Duncan Energy Partners GP from July 2008 to May 2010 and as a director of Holdings GP from October 2009 to May 2010. Mr. Teague joined Enterprise in connection with its purchase of certain midstream energy assets from affiliates of Shell Oil Company in 1999. From 1998 to 1999, he served as President of Tejas Natural Gas Liquids, LLC, then an affiliate of Shell. From 1997 to 1998, he was President of Marketing and Trading for MAPCO, Inc. Mr. Teague also serves on the board of Solaris Oilfield Infrastructure, Inc.
Randy Fowler is Director, Co-Chief Executive Officer and Chief Financial Officer of Enterprise Products Partners L.P. Mr. Fowler has served as Co-Chief Executive Officer since January 2020 and has been a director of Enterprise Products Partners General Partner (GP) since September 2011. He also serves as Co-Chairman of the Capital Projects Committee. Mr. Fowler previously served as President and Chief Financial Officer of Enterprise GP from August 2018 to January 2020, President of Enterprise GP from January 2016 to August 2018 and as Chief Administrative Officer of Enterprise GP from April 2015 to January 2016. He served as Executive Vice President and Chief Financial Officer of Enterprise GP from November 2010 to March 2015 and as Executive Vice President and Chief Financial Officer of EPGP from August 2007 to November 2010. He also served as President and Chief Executive Officer of DEP GP from April 2010 until September 2011 and as Executive Vice President and Chief Financial Officer of Duncan Energy Partners GP from August 2007 to April 2010. He served as a director of Duncan Energy Partners GP from September 2006 until September 2011. Mr. Fowler served as Senior Vice President and Treasurer of EPGP from February 2005 to August 2007 and of DEP GP from October 2006 to August 2007. Mr. Fowler also previously served as a director of EPGP and of Holdings GP from February 2006 to May 2010. Mr. Fowler also served as Senior Vice President and Chief Financial Officer of Holdings GP from August 2005 to August 2007. Mr. Fowler was elected Vice Chairman and Chief Financial Officer of EPCO in May 2010. He previously served as President and Chief Executive Officer of EPCO from December 2007 to May 2010 and as its Chief Financial Officer from April 2005 to December 2007. Mr. Fowler, a Certified Public Accountant (inactive), joined Enterprise as Director of Investor Relations in January 1999. Mr. Fowler also serves as Chairman of the Board of the Energy Infrastructure Council (formerly Master Limited Partnership Association). He also serves on the Advisory Board for the College of Business at Louisiana Tech University.

Forward-Looking Statement and Non-GAAP Financial Measures

This interview with A.J. “Jim” Teague and W. Randall “Randy” Fowler, Co-CEOs of Enterprise’s general partner, includes “forward-looking statements” as defined by the Securities and Exchange Commission. All statements, other than statements of historical fact, included herein that address activities, events, developments or transactions that Enterprise and its general partner expect, believe or anticipate will or may occur in the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations, including required approvals by regulatory agencies, the possibility that the anticipated benefits from such activities, events, developments or transactions cannot be fully realized, the possibility that costs or difficulties related thereto will be greater than expected, the impact of competition, and other risk factors included in Enterprise’s reports filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Except as required by law, Enterprise does not intend to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise. Also included in Mr. Teague’s and Mr. Fowler’s responses to questions in the interview are references to Enterprise’s non-GAAP financial measures. For a discussion of these metrics and reconciliations to their nearest GAAP counterparts, see “Non-GAAP Financial Measures” under the “Investors” section of Enterprise’s website at www.enterpriseproducts.com.

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