November 04, 2019 [Houston Chronicle] – Houston pipeline operator Enterprise Products Partners is moving forward with plans for a multibillion dollar expansion of its oil pipeline system that runs from West Texas to Houston.
Enterprise already owns and operates a pair of pipelines that move a combined 1 million barrels of crude oil per day from a Permian Basin storage terminal in Midland County to the company’s ECHO Terminal off Beltway 8 and State Highway 3 in southeast Houston. During a Monday investors call, CEO Jim Teague confirmed the company will add two more pipelines to the 500-mile system.
Pipelines three and four will each be designed to move 450,000 barrels of crude oil per day, with the capacity of the fourth pipeline able to be expanded to 540,000 barrels per day. The two pipelines, Teague said, also will be routed through the eastern end of the Eagle Ford Shale where they will connect to another pipeline system there. Midland-to-ECHO 3 is expected to be in service by the third quarter of 2020.
“This type of flexibility for our customers is unmatched,” Teague said.
Projected costs for the pipelines were not individually disclosed but Teague said Enterprise will be spending between $3 billion and $4 billion on new projects in 2020. In addition to adding the two pipelines, the company plans to build a new propane dehydrogenation plant, which processes propane into the plastic ingredient propylene, at the company’s complex in Mont Belvieu.
Enterprise said its third quarter profit fell more that 20 percent to $1 billion from $1.3 billion in the same period a year earlier. Revenues fell 17 percent to $8 billion from $9.6 billion, which the company attributed primarily to lower prices for crude oil, natural gas and natural gas liquids, which it transports, processes and sells.
Executives shrugged off that year-over-over decrease.
“Look at the map and our crude oil system,” Teague said during the investors call. “Enterprise can transport at optimum cost 1.3 million barrels a day. If the market needs more capacity, Enterprise can ramp that capacity to 1.8 million barrels a day with zero capital.”
The earnings come at a time when lower commodity prices are causing companies from the exploration and production and oil field service sectors to tighten their belts and lay off workers.
A research note from the Houston investment banking firm Simmons Energy said that Enterprise, which has $9.1 billion in new projects under construction, appears to be relatively unphased by the industry slowdown. Simmons estimates that 85 percent of the company’s gross earnings came from fee-based contracts, meaning it makes more money from fees for moving commodities rather than buying and selling them.
Stewart Glickman, an analyst with the New York investment research firm CFRA Research, added that Enterprise’s diverse operations from pipelines and processing plants to export terminals are a strength. Mostly funded from the company’s own cash flows, Enterprise plans to begin ethylene exports from its Morgan’s Point Terminal and begin construction on the propylene plant in Mont Belvieu later this year.
“In our view, even as capital expenditure spending across the industry is likely to ebb, we think production will still rise, which benefits midstream names like Enterprise,” Glickman said in a statement. “This is because Enterprise, as a largely fee-based services provider, depends much more on volumes than on pricing.”
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