For the Three and Six Months Ended
The following information should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and accompanying Notes included in this quarterly report on Form 10-Q and the Audited Consolidated Financial Statements and related Notes, together with our discussion and analysis of financial position and results of operations, included in our annual report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Form 10-K"), as filed onFebruary 28, 2022 with theU.S. Securities and Exchange Commission ("SEC"). Our financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") inthe United States ("U.S.").
Cautionary Statement Regarding Forward-Looking Information
This quarterly report on Form 10-Q for the six months endedJune 30, 2022 (our "quarterly report") contains various forward-looking statements and information that are based on our beliefs and those of our general partner, as well as assumptions made by us and information currently available to us. When used in this document, words such as "anticipate," "project," "expect," "plan," "seek," "goal," "estimate," "forecast," "intend," "could," "should," "would," "will," "believe," "may," "scheduled," "pending," "potential" and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. Although we and our general partner believe that our expectations reflected in such forward-looking statements (including any forward-looking statements/expectations of third parties referenced in this quarterly report) are reasonable, neither we nor our general partner can give any assurances that such expectations will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions as described in more detail under Part I, Item 1A of our 2021 Form 10-K and within Part II, Item 1A of this quarterly report. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. You should not put undue reliance on any forward-looking statements. The forward-looking statements in this quarterly report speak only as of the date hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.
Key References Used in this Management's Discussion and Analysis
Unless the context requires otherwise, references to "we," "us" or "our" within
this quarterly report are intended to mean the business and operations of
References to the "Partnership" or "Enterprise" mean
References to "EPO" meanEnterprise Products Operating LLC , which is an indirect wholly owned subsidiary of the Partnership, and its consolidated subsidiaries, through which the Partnership conducts its business. We are managed by our general partner,Enterprise Products Holdings LLC ("Enterprise GP"), which is a wholly owned subsidiary ofDan Duncan LLC , a privately heldTexas limited liability company. The membership interests ofDan Duncan LLC are owned by a voting trust, the current trustees ("DD LLC Trustees") of which are: (i)Randa Duncan Williams , who is also a director and Chairman of the Board of Directors (the "Board") of Enterprise GP; (ii)Richard H. Bachmann , who is also a director and Vice Chairman of theBoard of Enterprise GP ; and (iii)W. Randall Fowler , who is also a director and the Co-Chief Executive Officer and Chief Financial Officer of Enterprise GP. Ms.Duncan Williams and Messrs. Bachmann and Fowler also currently serve as managers ofDan Duncan LLC . References to "EPCO" meanEnterprise Products Company , a privately heldTexas corporation, and its privately held affiliates. The outstanding voting capital stock of EPCO is owned by a voting trust, the current trustees ("EPCO Trustees") of which are: (i) Ms.Duncan Williams , who serves as Chairman of EPCO; (ii)Mr. Bachmann , who serves as the President and Chief Executive Officer of EPCO; and (iii)Mr. Fowler , who serves as an Executive Vice President and the Chief Financial Officer of EPCO. Ms.Duncan Williams and Messrs. Bachmann and Fowler also currently serve as directors of EPCO. 38
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We, Enterprise GP, EPCO andDan Duncan LLC are affiliates under the collective common control of theDD LLC Trustees and the EPCO Trustees. EPCO, together with its privately held affiliates, owned approximately 32.2% of the Partnership's common units outstanding atJune 30, 2022 .
As generally used in the energy industry and in this quarterly report, the acronyms below have the following meanings:
/d = per day MMBPD = million barrels per day BBtus = billion British thermal units MMBtus = million British thermal units Bcf = billion cubic feet MMcf = million cubic feet BPD = barrels per day MWac = megawatts, alternating
current
MBPD = thousand barrels per day MWdc = megawatts, direct current MMBbls = million barrels
TBtus = trillion British thermal units As used in this quarterly report, the phrase "quarter-to-quarter" means the second quarter of 2022 compared to the second quarter of 2021. Likewise, the phrase "period-to-period" means the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 .
Overview of Business
We are a publicly tradedDelaware limited partnership, the common units of which are listed on theNew York Stock Exchange ("NYSE") under the ticker symbol "EPD." Our preferred units are not publicly traded. We were formed inApril 1998 to own and operate certain natural gas liquids ("NGLs") related businesses of EPCO and are a leading North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, petrochemicals and refined products. We are owned by our limited partners (preferred and common unitholders) from an economic perspective. Enterprise GP, which owns a non-economic general partner interest in us, manages our Partnership. We conduct substantially all of our business operations through EPO and its consolidated subsidiaries. Our fully integrated, midstream energy asset network (or "value chain") links producers of natural gas, NGLs and crude oil from some of the largest supply basins in theU.S. ,Canada and theGulf of Mexico with domestic consumers and international markets. Our midstream energy operations include:
• natural gas gathering, treating, processing, transportation and storage;
• NGL transportation, fractionation, storage, and marine terminals (including
those used to export liquefied petroleum gases ("LPG") and ethane);
• crude oil gathering, transportation, storage, and marine terminals;
• propylene production facilities (including propane dehydrogenation ("PDH")
facilities), butane isomerization, octane enhancement, isobutane dehydrogenation ("iBDH") and high purity isobutylene ("HPIB") production facilities;
• petrochemical and refined products transportation, storage, and marine
terminals (including those used to export ethylene and polymer grade propylene
("PGP")); and
• a marine transportation business that operates on key
intracoastal waterway systems.
The safe operation of our assets is a top priority. We are committed to protecting the environment and the health and safety of the public and those working on our behalf by conducting our business activities in a safe and environmentally responsible manner. For additional information, see "Environmental, Safety and Conservation" within the Regulatory Matters section of Part I, Items 1 and 2 of the 2021 Form 10-K. Like many publicly traded partnerships, we have no employees. All of our management, administrative and operating functions are performed by employees of EPCO pursuant to an administrative services agreement (the "ASA") or by other service providers. 39
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Our financial position, results of operations and cash flows are subject to certain risks. For information regarding such risks, see "Risk Factors" included under Part I, Item 1A of the 2021 Form 10-K and Part II, Item 1A of this quarterly report.
We provide investors access to additional information regarding the Partnership and our consolidated businesses, including information relating to governance procedures and principles, through our website, www.enterpriseproducts.com.
Recent Developments
Enterprise Announces Three Expansions in the
InAugust 2022 , we announced three new projects to support ongoing production growth in thePermian Basin , which are all expected to be completed during the first half of 2024. The announcement included the following projects (including their respective scheduled completion dates):
• our Plant 7 natural gas processing plant in the
2024);
• our Mentone III cryogenic natural gas processing plant (first quarter of 2024);
and
• a 275 MBPD expansion of our Shin Oak NGL Pipeline (first half of 2024).
Enterprise and OLCV Sign Letter of Intent for
InApril 2022 ,Enterprise andOxy Low Carbon Ventures, LLC ("OLCV"), a subsidiary of Occidental, announced that we have executed a letter of intent to work toward a potentialcarbon dioxide ("CO2") transportation and sequestration solution for theTexas Gulf Coast . The joint project would initially be focused on providing services to emitters in the industrial corridors from the greaterHouston toBeaumont /Port Arthur areas. The initiative would combine Enterprise's leadership position in the midstream energy sector with OLCV's extensive experience in subsurface characterization and CO2 sequestration. Enterprise would develop the CO2 aggregation and transportation network utilizing a combination of new and existing pipelines along its expansiveGulf Coast footprint. OLCV, through its 1PointFive business unit, is developing sequestration hubs on theGulf Coast and across theU.S. , some of which are expected to be anchored by direct air capture facilities. The hubs will provide access to high quality pore space and efficient transportation infrastructure, bringing more options to emitters looking to explore viablecarbon management strategies. Enterprise and OLCV have begun exploring the commercialization of the potential joint service offering with customers. 40
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Enterprise Announces Seven New Projects During Analyst and Investor Day
On
• a 400 MMcf/d expansion of our Acadian Gas System (second quarter of 2023);
• our Plant 6 natural gas processing plant in the
of 2023);
• a twelfth NGL fractionator ("Frac XII") in
quarter of 2023);
• our Mentone II cryogenic natural gas processing plant (fourth quarter of 2023);
• our Texas Western Products System, created by repurposing a portion of our
Mid-America Pipeline System's
service to our Chaparral Pipeline business to transport refined products from
the
(fourth quarter of 2023);
• an
• an expansion of our Morgan's Point terminal to increase ethylene export
capacity (2023 and 2025).
Enterprise Announces Acquisition of
InJanuary 2022 , we announced that an affiliate of Enterprise entered into a definitive agreement to acquireNavitas Midstream Partners, LLC ("Navitas Midstream") from an affiliate of Warburg Pincus LLC in a debt-free transaction for$3.25 billion in cash consideration (subject to adjustment in accordance with the agreement).Navitas Midstream's assets include approximately 1,750 miles of pipelines and over 1.0 Bcf/d of cryogenic natural gas processing capacity. The purchase price was paid in cash at closing onFebruary 17, 2022 . We funded the cash consideration for this acquisition using proceeds from the issuance of short-term notes under our commercial paper program and cash on hand. See Note 12 of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item 1 of this quarterly report for additional information regarding this acquisition. 41
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Selected Energy Commodity Price Data
The following table presents selected average index prices for natural gas and selected NGL and petrochemical products for the periods indicated:
Polymer Refinery
Natural Normal Natural
Grade Grade Processing
Gas, Ethane, Propane, Butane, Isobutane, Gasoline,
Propylene, Propylene, Gross Spread
$/MMBtu $/gallon $/gallon $/gallon $/gallon $/gallon
$/pound $/pound $/gallon
(1) (2) (2) (2) (2) (2) (3) (3) (4) 2021 by quarter: 1st Quarter$2.71 $0.24 $0.89 $0.94 $0.93 $1.33 $0.73 $0.44 $0.38 2nd Quarter$2.83 $0.26 $0.87 $0.97 $0.98 $1.46 $0.67 $0.27 $0.41 3rd Quarter$4.02 $0.35 $1.16 $1.34 $1.34 $1.62 $0.82 $0.36 $0.51 4th Quarter$5.84 $0.39 $1.24 $1.46 $1.46 $1.82 $0.66 $0.33 $0.41 2021 Averages$3.85 $0.31 $1.04 $1.18 $1.18 $1.56
2022 by quarter: 1st Quarter$4.96 $0.40 $1.30 $1.59 $1.60 $2.21 $0.63 $0.39 $0.55 2nd Quarter$7.17 $0.59 $1.24 $1.50 $1.68 $2.17 $0.61 $0.40 $0.46 2022 Averages$6.07 $0.50 $1.27 $1.55 $1.64 $2.19
(1) Natural gas prices are based on Henry-Hub Inside FERC commercial index prices
as reported by Platts, which is a division of S&P Global, Inc. (2) NGL prices for ethane, propane, normal butane, isobutane and natural gasoline
are based on
by
product as reported by IHS. Refinery grade propylene ("RGP") prices
represent weighted-average spot prices for such product as reported by IHS. (4) The "Indicative Gas Processing Gross Spread" represents our generic estimate
of the gross economic benefit from extracting NGLs from natural gas
production based on certain pricing assumptions. Specifically, it is the
amount by which the assumed economic value of a composite gallon of NGLs in
in natural gas at Henry Hub,
does not consider the operating costs incurred by a natural gas processing
facility to extract the NGLs nor the transportation and fractionation costs
to deliver the NGLs to market. In addition, the actual gas processing spread
earned at each plant is further influenced by regional pricing and extraction
dynamics. The weighted-average indicative market price for NGLs was$1.06 per gallon in the second quarter of 2022 versus$0.64 per gallon in the second quarter of 2021. Likewise, the weighted-average indicative market price for NGLs was$1.01 per gallon during the six months endedJune 30, 2022 compared to$0.63 per gallon during the same period in 2021.
The following table presents selected average index prices for crude oil for the periods indicated:
WTI Midland Houston LLS Crude Oil, Crude Oil, Crude Oil Crude Oil, $/barrel $/barrel $/barrel $/barrel (1) (2) (2) (3) 2021 by quarter: 1st Quarter$57.84 $59.00 $59.51 $59.99 2nd Quarter$66.07 $66.41 $66.90 $67.95 3rd Quarter$70.56 $70.74 $71.17 $71.51 4th Quarter$77.19 $77.82 $78.27 $78.41 2021 Averages$67.92 $68.49 $68.96 $69.47 2022 by quarter: 1st Quarter$94.29 $96.43 $96.77 $96.77 2nd Quarter$108.41 $109.66 $109.96 $110.17 2022 Averages$101.35 $103.05 $103.37 $103.47
(1) WTI prices are based on commercial index prices at
measured by the NYMEX.
(2)
reported by Argus. (3) Light Louisiana Sweet ("LLS") prices are based on commercial index prices as
reported by Platts. 42
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Fluctuations in our consolidated revenues and cost of sales amounts are explained in large part by changes in energy commodity prices. An increase in our consolidated marketing revenues due to higher energy commodity sales prices may not result in an increase in gross operating margin or cash available for distribution, since our consolidated cost of sales amounts would also be expected to increase due to comparable increases in the purchase prices of the underlying energy commodities. The same type of relationship would be true in the case of lower energy commodity sales prices and purchase costs. We attempt to mitigate commodity price exposure through our hedging activities and the use of fee-based arrangements. See Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item 1 of this quarterly report and "Quantitative and Qualitative Disclosures About Market Risk" under Part I, Item 3 of this quarterly report for information regarding our commodity hedging activities.
Impact of Inflation
After being relatively moderate in recent years, inflation inthe United States increased significantly in late 2021 into 2022. This rise in inflation, coupled with supply chain disruptions, labor shortages and increased commodity prices, has generally resulted in higher costs in 2022. However, to the extent that a rising cost environment impacts our results, there are typically offsetting benefits either inherent in our business or that result from other steps we take proactively to reduce the impact of inflation on our net operating results. These benefits include: (1) provisions included in our fee-based revenue contracts that offset cost increases in the form of rate escalations based on positive changes in theU.S. Consumer Price Index, Producer Price Index for Finished Goods or other factors; (2) provisions in other revenue contracts that enable us to pass through higher energy costs to customers in the form of gas, electricity and fuel rebills or surcharges; and (3) higher commodity prices, which generally enhance our results in the form of increased volumetric throughput and demand for our services. Additionally, we take measures to mitigate the impact of cost increases in certain commodities, including a portion of our electricity needs, using fixed-price, term purchase agreements. For these reasons, the increased cost environment, caused in part by inflation, has not had a material impact on our historical results of operations for the periods presented in this report. However, a significant or prolonged period of high inflation could adversely impact our results if costs were to increase at a rate greater than the increase in the revenues we receive. See "Capital Investments" within this Part I, Item 2 for a discussion of the impact of inflation on our capital investment decisions. Additionally, see Part II, Item 1A "Risk Factors - Changes in price levels could negatively impact our revenue, our expenses, or both, which could adversely affect our business." 43
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