Enterprise Earnings: Second Half of 2023 Shaping Up To Be Better Than First

Enterprise’s EPD second-quarter earnings were somewhat weak compared with last year’s results, with EBITDA of $2.2 billion compared with $2.4 billion. While system volumes have increased noticeably, earnings have been affected by a nearly 50% decline in natural gas liquids pricing, as well as lower pricing at its petrochemicals unit. The pricing primarily would have an impact on marketing spreads. After updating our model for second-quarter results, we are leaving our $27.50 per unit fair value estimate intact, as well as our wide moat rating.

With the pricing weakness featuring so prominently in the first half of the year’s results, we expect a better second half. For context, first-half EBITDA is about $4.5 billion, while we expect full-year EBITDA closer to $9.4 billion. The first major driver of that will be some significant projects placed in service during the second quarter, with more material contributions expected from its second propane dehydrogenation plant, and its new natural gas liquids fractionator.

The other major driver is the volatility and likely improvement in the natural gas liquids market, particularly ethane. Ethane makes up anywhere between 40% and 50% of a typical natural gas liquids barrel, and prices during June and July have essentially doubled before declining a bit recently. We expect the heat wave recently has made it more difficult to cool processing plants enough to recover the ethane from the gas stream and is having a similar effect on fractionation plant capacity, reducing ethane supplies. At the same time, petrochemical demand in the U.S. is very high, with steam cracker utilization at or above 90%. We think the healthy demand environment combined with a modest cut to supply caused the market volatility, creating conditions for Enterprise to profit by offloading ethane held in storage. We expect Enterprise to continue to capture improved marketing spreads, as the market should remain volatile.