Enterprise Products Earnings: Growth Announcements Restock Near-Term Pipeline for 2024

Enterprise’s EPD third-quarter results revealed a new round of growth investments in the Permian. However, we expect to maintain our $27.50 per unit fair value estimate and wide moat rating. The $3.1 billion in new investments includes converting the Seminole pipeline to natural gas liquids from crude, two new gas processing plants, a natural gas liquids fractionator, and a new natural gas liquids pipeline. All of the new investments are supporting ongoing oil, gas, and natural gas liquids growth in the Permian basin through the end of the decade and should be online in 2025. While we think the investments are likely to yield very good returns, we also see them as largely restocking the project pipeline beyond 2023. As a result, we see them as more supportive of our near-term growth forecast versus materially increasing it.

Enterprise’s management team had been hinting for several quarters that a material sanctioning of new projects was imminent. Notably, the Sea Port Oil Terminal (SPOT) remains unsanctioned, but this could be another several billion-dollar investment by our estimates. The oil export terminal is likely to be a significant game-changer in terms of pulling oil flows toward the Gulf Coast away from Corpus Christi for export.

The new investments will take 2023 growth capital spending to $3 billion and 2024 spending to $3.25 billion. These levels are higher than our expectations of $2.4 billion annually, so we expect to increase our forecast. Including expected maintenance spending of $400 million, 2024 capital expenditures are likely to exceed 2020′s $3.3 billion in investments but remain well below the $4 billion-plus routinely invested by Enterprise between 2012-19. Last quarter, 2023 capital spending was at a midpoint of $2.6 billion with 2024 spending falling to a midpoint of $2.25 billion, suggesting the need for more projects.