Enterprise Products Partners L.P. (EPD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to Enterprise Products Partners LP's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Joe Theriac, VP of Finance and Investor Relations. Please go ahead.

Thanks, Lateef. Good morning, and welcome to the Enterprise Products Partners conference call to discuss third quarter 2026 earnings. Our speakers today will be Co-Chief Executive Officers of Enterprise's General Partner, Jim Teague and Randy Fowler. Other members of our senior management team are also in attendance for the call today. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities Exchange and 1934 based on the beliefs of the company as well as assumptions made by and information currently available to Enterprise's management team. Although management believes that the expectations reflected in such forward-looking statements are reasonable and give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. And with that, I'll turn it over to Jim.

Thank you, Joe. As some of you may or may not know, this marks my final quarterly earnings call as co-CEO of Enterprise. Looking out across this room and reflecting on nearly 3 decades, it's impossible not to feel a profound sense of gratitude [indiscernible] the journey we have shared. When I joined Enterprise in 1999, the company had an enterprise value of less than $2 billion. Today, it approaches $120 billion. The true measure of Enterprise has never been just the number on the balance sheet. It has always been defined by a philosophy that was [ ended ] down by Dan. Do the best you can every day. Those simple yet profound words became the foundation of the Enterprise culture, define both our personal and collected mission, achieved extraordinary results through hard work, perseverance and team work. Before going Enterprise, I spent more than 2 decades at [ Dow Chemical ]. I was an Enterprise customer. My time on the other side of the negotiating table gave me a unique perspective of the midstream industry. It helped me to view our assets from the customers' point of view. That customer-first mindset is woven directly into our culture, driving our team to ask the hard questions. How do we solve our customers' problems? How do we eliminate downtime and how do we keep products moving. That mindset, combined with an extraordinary team willing to ask [indiscernible] why not allowed us to move quickly when the shale revolution transformed our industry. We spent the last 20 years connecting supply basins from the Permian, Eagle, Haynesville and Marcellus to our customers along with the Coast. And when domestic production exceeded U.S. demand, we built and expanded our collection export terminals to deliver product all over the world. When I look at our network of pipelines, plants and docks, I don't just see physical assets, I see the people who run them. Our assets thrive because the people operating them care about one another. Enterprise's success has never been driven by individual [ Eros ], it's driven by teamwork. We operate as one, 1 team and 1 book, the Enterprise book. A decision is made based on the overall benefit for the company. For a long time, we've measured things in [ Dan ] dollars. Today, we measure them Randall dollars. Our strength comes from checking [ egos ] at the door and staying laser-focused on the details. All the men and women across our entire system, thank you. You are the true engine of Enterprise. You've braved freezing rain, brutal heat hurricanes and a pandemic. And when times get tough [indiscernible] work around the clock to keep production flowing. Serving alongside you has been the greatest breach of my professional life. To Randall, thank you for your unwavering support and thank you for your dedication for preserving our [indiscernible] values. To my partner, Randy. We have shared an incredible working partnership for nearly 30 years. Your financial discipline, sound business judgment and dedication to our core values represent everything the Enterprise culture stands for. As Randy assumes the CEO role in January, I step aside knowing with certainty this company is absolutely in the best hands, Finally, by our investors and the analyst community. Thank you for the engagement, the sharp questions and the trust you placed in our company over the years. And with that, you got the ball [indiscernible] boy.

And as always, you're a hard act to follow. Thank you for your leadership and interest over the past 28 years. You have been a pace setter and driver of value creation for our customers and our partnership. Whether it was developing NGL markets, both domestically and internationally, to absorb all the prolific amount of NGLs produced from the shale plays. Or developing transparent and liquid pricing hubs for ethylene and polymer propylene that benefited our petrochemical customers or leading the [indiscernible] to improve the Houston Ship Channel [ through Assure 2-way ] traffic in securing the Project 11 deepening and widening expansion project, you have been one of the leading change agents in our industry. We congratulate on an extraordinary career and wish you the absolute best and the next chapters of your remarkable life. Now with that, let's turn to the quarter. Enterprise reported another strong performance for the third quarter. These results were primarily driven by increased natural gas and NGL production growth in the Permian. And that was reflected across our entire natural gas and NGL value chain businesses. Also from continuing strong demand for U.S. energy and petrochemical products including the motor gasoline additives we produce, also higher natural gas pipeline volumes in the Haynesville Basin as well as earnings and cash flow from new assets placed in service over the past 12 months. For the quarter, we generated $2.8 billion of adjusted EBITDA a 16% increase over the third quarter last year. Distributable cash flow from operations increased 27% year-over-year to $2.3 billion, providing 1.9x coverage and generating $1.1 billion of retained cash flow that we've reinvested back in the partnership. Our integrated pipeline system moved a record 14.8 million barrels per day equivalent and our marine terminals exported 2.5 million barrels per day of liquid hydrocarbons. And our natural gas processing business, total inlet volumes reached a record 8.5 Bcf a day. In the Permian Basin, plant inlet volumes increased by 12% compared to the third quarter of last year, hitting a record 4.6 Bcf per day. Our 3-year CAGR on Permian plant in volumes is 19%. That production growth feeds our integrated NGL value chain supporting higher pipeline, fractionation, storage and export [ utilization ]. Our system provides our producer customers flow reliability and access to multiple markets while providing our consumer customer supply diversification. Assets that began operations during the past 12 months include our 11th natural gas processing plant in the Delaware Basin, the Bahia NGL pipeline, frac 14 in Mont Belvieu, and the second phase of our Neches River NGL export terminal. Global energy supply disruptions and volatility continue to support strong international demand for U.S. hydrocarbons, particularly NGLs, petrochemicals and refined products. In this environment, our reliability, flexibility and most of all, price transparency remain increasingly valuable for our international customers. Looking ahead, our next major projects scheduled for completion in the fourth -- in the fourth quarter are 300,000 barrels a day LPG export expansion at our Houston Ship Channel, export marine terminal and a new 300 million cubic feet per day per gas processing plant in the Midland Basin. The LPG lean terminal expansion will increase our total LPG loading capacity at the ship channel to approximately 1.1 million barrels per day. Athena, our 20th natural gas processing plant in the Permian Basin will increase our total processing capacity in the basin to nearly 5 Bcf per day. We have recently updated our production growth -- Permian production growth forecast through 2030. While our 2025 to 2030 forecast of crude oil production, changed modestly, the growth changed modestly, only 100,000 barrels per day by 2030 our forecast of wet natural gas and NGL [ production ] during this time period increases to 34% due to higher gas to oil ratios in the Permian. This compares to 23% growth for this time period that we forecasted last April. I'd refer you to Page 9 of our third quarter earnings supplemental slide deck for this updated forecast. And [ Cott ] can address this further during our Q&A. We have a confident outlook continued production growth in the Permian Basin and robust domestic and international demand are providing attractive organic growth opportunities for the partnership. We are remaining disciplined in our capital allocation, rather than pursuing acquisitions at top-of-the-cycle M&A multiples, we have been opting for targeted organic growth that historically provided us higher and more consistent returns on capital with fewer surprises. We have $6.3 billion of organic growth projects that have been sanctioned and are under construction. We believe with these opportunities and solid execution, our team can continue to deliver cash flow per unit growth that will increase the value of our partnership over time. During the quarter, we declared a distribution of $0.56 per common unit for the third quarter, which is a 2.8% increase over the distribution that we declared for the third quarter [ '25 ]. The distribution will be paid on November 30 to common unitholders of record as of the close of business on October 30. The partnership purchased $112 million of its common units during the third quarter. Total year-to-date repurchases for 2026 were $387 million bringing the cumulative utilization of our $5 billion buyback program to 36%. In addition to buybacks, purchases under our distribution reinvestment plan and employee unit purchase plan totaled approximately 1 million common units. For the 12 months ended September 30, 2026 Enterprise paid out approximately $4.8 billion in distributions to limited partners combined with $437 million of buybacks over the same period Enterprise's total capital return was $5.3 billion, resulting in a payout ratio of adjusted cash flow from operations of 54%. Total capital investments were $1.1 billion in the third quarter of 2026, which included $900 million for growth capital projects and $185 million of sustaining CapEx. Our expected range of growth capital expenditures for 2026 will net to between $2.9 billion and $3.4 billion after applying approximately $600 million of proceeds from asset sales already received. While we currently expect our growth capital expenditures in 2027 to still be in the $3 billion area. Given the expected natural gas and NGL volume growth in the Permian, we will provide an update next quarter after we complete our annual budget cycle and review [ production ] plans. Sustaining CapEx for 2026 are expected to be approximately $650 million. Our total debt principal outstanding was approximately $33.7 billion as of September 30. Assuming the final maturity date for our hybrids, the weighted average life of our debt portfolio is approximately 17 years. Our weighted average cost of debt is 4.7%, and approximately 96% of our debt was fixed rate. At September 30, our consolidated liquidity was approximately $4.8 billion, including availability under our credit facilities and unrestricted cash on hand. As of September 30, our consolidated leverage ratio was 2.9x on a net basis after adjusting debt for the partial equity treatment of our hybrid debt and reduced by the partners -- partnerships unrestricted cash on hand. Our leverage target remains 3x plus or [ minus 1/4 ]. So that is 2.7x to 3.25x. With that, Joe, we can open it up for questions.

Thanks, Andy. Lateef, we are ready to open up the call for questions.

[Operator Instructions] Our first question is from the line of Jean Ann Sailsbury of BofA.

Jim, best of luck to you in retirement. We are definitely going to miss hearing quotable quotes on these calls. There will be a void during earnings season, and thank you for all of the help.

Thank you, Jean Ann.

Corey, I just wanted to ask what drove the increase in your gas-to-oil ratio forecast? Was it decline curves in wells that have already been online? Or was this more of an expectation of a coming producer shift to more Delaware or something like that?

Yes, Jean Ann, it's a great question, and I think you nailed it. It really is both of those factors kind of combined. So when we think about the decline curves we have been seeing the [indiscernible] all on natural gas, so when we look at our PDP, you get that compounding effect of more natural gas coming online relative to crude oil. So that was one of the key drivers for increased GORs in the basin. The other one, obviously, as you pointed out, is people moving to different locations, whether it be moving just into a location in the Delaware Basin where we're seeing a little bit of activity from a growth perspective. Typically, the Delaware Base is dryer, but they're also hitting new benches that are [ using ] really high GORs. Some of these benches typically will reach as high as 89 GOR on [indiscernible], and these are the Woodfords and the Barnett's relative to what we would see on a Wolfcamp that's more like a 2 GOR IP. So some of these areas definitely have rock that have more gas -- and when we build out our forecast, Jean Ann, and there's a couple that we like to look at. One of them, obviously, is location, as I just mentioned, another one is technology, and we keep looking at what the producers are doing in the basin, using different potents, new surfactants, new drilling mechanisms, the frac equipment is better. When I think about total recoveries that come out of the rock, as we've been talking about an increase in total recovery in the basin, those last few percent are typically going to be a lighter molecule. So these are all factors driving higher GORs.

Thank you. I look forward to doubling into it even further with you in the next few weeks. As my follow-up, ethane and propane prices have been very strong in the past month or so. I think some are attributing it to a ramp in exports. Some are saying that fractionation is extremely tight, and that's the main driver. I'm just wondering what your view is and whether these elevated price levels of ethane and propane you expect to persist?

Jean Ann, it's Tyler Cott, yes, we've seen a little bit of an increase. It's been mostly in the front of the curve. And I think it's for the reasons that you said, just timing around demand and supply. We've had new ethane cracker in the U.S. Gulf Coast reportedly starting up and a little bit of new export capacity. So I think that's part of it, along with fractionation waiting to come online. I think it's important to note, though, that the U.S. is still extremely competitive somewhat due to the high freight cost. So U.S. consumers of those NGLs are still very much advantage to the rest of the world.

And Jean Ann, this is [indiscernible]. I'll just add that ethane production is continuing to grow, we still continue to expect ethane to be long here in the U.S.

Our next question comes from the line of Theresa Chen of Barclays.

Congratulations again, to Jim. Thank you for your leadership, and we wish you the best as well. Going back to the macro forecast, given the magnitude of the gas provision in just 6 months and with the provisions consistently moving higher over the past iterations [indiscernible] conservatism and general subjectivity is embedded in your assumptions? And do you see the potential for CR to surprise even further to that upside?

This is Corey. Yes, I think there are some conservative variables that we have in there. When we look at how these type curves are changing, it's a measure of what we've seen change in the past. And some of these new formations are really new to us. And so we're going to see how they shake out. So there could be more gas.

And turning to the Northeast with continued upstream consolidation there, how are you thinking about the implications for ATEX recontracting at this point. I'm taking into account the existing plans at [ AR and RSE ] and now the [ ETT ] branch combination -- does the change in producer landscape alter the commercial dynamics around ATEX as those contracts come up for renewal soon?

Yes. And Theresa, before I turn it over to Carrie to answer. Just to keep in context, this is less than 3% of our EBITDA. Carrie, go ahead.

This is Carrie Weaver. We don't view the recent announcements as materially changing how we look at ATEX. We recognize that there certainly could be some optimization as customers look at their portfolios. And we would expect the next generation of contracts to reflect today's market rather than the e-com that existed when [indiscernible] was originally contracted. But the conversations are still dynamic, and we're having those with current potential new shippers as we continue to evaluate on a high level what the best, most economic uses of the pipe, but we continue to view ATEX as a very strategic asset and that's especially with the significant amount of demand coming online in the Gulf Coast that will need the ethane.

Our next question comes from the line of Spiro Dounis of Citi.

Thanks, operator. Congrats once again, Jim, Randy, very much looking forward to your first monologue. Going to the '27 outlook first. I know the original 10% increase in '27 is maybe less relevant now, given the '26 outperformance. But from what I can tell, you've largely sort of held firm that ultimate EBITDA endpoint for '27 and maybe hesitant to say that '26 tailwinds are durable through next year. So curious now, maybe to get an update on that outlook, especially in light of you raising your Permian volume outlook?

Yes. Spiro, I don't get used to the monologue. We're going to be having some additional speakers on the next call. Fair question. The one thing to keep in context, if you just look at our EBITDA through the first 3 quarters of this year, we're up 15% year-to-date. So I think to a degree, we got things backwards when we said we were looking at modest growth in '26 and then we could see up to 10% growth in '27. I think the way it's turning out, again, 15% up year-to-date. So 2027. Hard to know what the world will bring in '27 as far as geopolitical conflicts and what have you, but '27 may be more modest compared to what we're going to wind up reporting 2026.

Got it. And we see a modest percentage basis? Just want to make sure I understand what that means.

Spiro, it depends on what your crystal ball is for geopolitical [indiscernible]. Because that's where we picked up some nice spreads across the system. So without that, I think it's probably more modest, not really looking to put a percent on it.

Yes. I can appreciate the lack of clarity these days. Second question, maybe just turning to leverage below 3x now, what I could tell, trending perhaps even below your sort of lower end of the range next year if all goes well. Good problem to have, certainly, but I guess at what point do you consider yourselves under levered? Is that a meaningful consideration in your mind? And what are the options to address it? I know buybacks are there, but you've taken a growing but kind of measured approach on that. And so I'm curious, do you see large growth opportunities manifesting themselves now for later in the decade? Or does M&A suddenly come back into focus?

Spiro, we -- from the -- we're just looking at 2.9x on debt-to-EBITDA. We just picked that this quarter and think of that -- some of that is the tailwind of 15% EBITDA growth this year. So we're benefiting from that. Certainly, the balance sheet flexibility gives us a lot of -- a lot of room on the M&A side. But again, as we said in the prepared remarks, we've really been deliberate on the M&A front. And it seems like organic growth gives us more consistent returns of capital. And like I said, I'll reiterate with a lot fewer surprises than what we see on the M&A side. So I don't see the [indiscernible] for our debt to go much lower than where it is today. And -- but we've got -- as we said in the prepared remarks, we've got a lot of good growth opportunities coming in, especially when you come in and look at just the gas and NGL rich content, in the Permian. We've got a lot of room to run.

Our next question comes from the line of Manav Gupta of UBS.

I actually just wanted to follow up quickly on the Bahia expansion. Your partner is obviously setting the envelope of developments within the Permian with stackable technologies and their volumes are growing at a faster pace than anyone would have expected. So if you could give us an update on the Bahia expansion probably coming on from 1 year from now?

Yes. This is Carrie. As we look at Bahia, the extension into the Delaware will be in service for fourth quarter of '27, the expansion of 400,000 barrels a day, stepping us up to 1 million barrels a day. We start in the fourth quarter of '27 as well and continue through mid-2028. And that's as we get permanent power and pump stations with power really being a critical path.

Perfect. And my quick follow-up is, I think you mentioned in the opening comments that you don't want to pay higher multiples at the peak of the cycle. But thinking about very strong balance sheet, any potential bolt-on opportunities, where are the areas where we be potentially looking to buy some stuff if it's available at the right price.

Really, I would -- I think as far as bolt-on opportunities really across the entire value chain across the entire system.

Our next question comes from the line of John Mackay of Goldman Sachs.

Go back to the [ current outlook ] a little bit, and this has been touched on, but maybe ask it in a different way. With the higher Permian gas growth outlook, how do you see that kind of changing your project plans over the next few years? I mean, if you're going to, let's say, hold relative G&P market share, it probably implies more plants and therefore, more downstream in the plan than you would have been considering before. So maybe just kind of walk us through how you're thinking about that.