Q2 2021 Enterprise Products Partners LP Earnings Call
[music].
Good day and thank you.
Hi.
Welcome to the enterprise products partners L. P second quarter 2021 earnings conference call at this time all.
Participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
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Got it if you're planning further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Randy Burkhalter, Vice President of Investor Relations. Please go ahead.
Thank you Shannon good morning, and welcome everyone to the enterprise products Partners Conference call to discuss second quarter 2021 earnings our speakers.
A day will be co chief executive officers, a enterprise's general partner, Jim Teague and Randy Fowler.
Other members of our senior management team are also on attendance for the call today.
During this call we will make forward looking statements within the meaning of section 21 E. A the security Securities and Exchange Act a 1934 based.
Being a request of the company as well as assumptions made by and information currently available a enterprises management team.
Although management believes that the expectations reflected in such forward looking statements a reasonable it can give no assurance that such expectations will prove to be correct.
Please refer to our latest filings with the SEC.
On the belief or a list of factors that may cause actual results to differ materially from those in a forward looking statements made during this call and with that I'll turn it over to Jim.
Thank you Randy.
A.
We can do our businesses continued to perform extremely extremely well during the second quarter, we reported.
Over $2 billion EBITDA.
For the second quarter, our distributable cash flow was 1.6 times coverage cash.
Flow from operations for a second quarter was 2 billion more than fully funded both our cap on capex and our distributions. So as we sit halfway through the year.
Our distributable cash flow totaled $3.3 billion, providing $1.35 billion in retained cash.
Second quarter results reflect the ongoing recovery in demand for hydrocarbons as the global economy continues to reopen from Covid Lockdowns.
Our liquids pipelines transported $6.4 million barrels a day and a second quarter, our natural gas pipelines transported $4.2 billion Btu's a day for.
For the second quarter net equaled.
2019 volume.
Summing it all up in crude oil equivalent we transported.
Reported $10.2 million barrels a day.
A fractionation volumes remained strong editor near record at $1.2 million barrels a day a propylene production for the second quarter of 2021 was a record 113000 barrels a day.
And liquid volumes handled by a marine terminals for the second.
Quarter, $1.6 million barrels a day, which continues to lag pre pandemic.
For a pre pandemic first quarter 'twenty performance 2 million barrels a day, primarily due to weakness in crude oil exports.
Really this would be expected a strong prices backward dated.
David markets and lower inventories at Cushing are signaling that volume needs to stay at home at least for now and short shows that markets work.
This time last year, we were slipping deeper into the pandemic.
It looked and felt like a black hole to some but.
By this time last year, we had already return to our headquarters office, what was virtually an empty downtown Houston.
We set protocols.
We started wearing mask before they were mandated we put a plexiglass around our cubicles.
Yes.
We insisted on keeping our distance and.
And we had hand sanitizers all over the building.
But I really think it was a competitive advantage being back.
Because we worked as a team we.
We moved products for our customers and our producers.
We were buying and selling where arb into system and.
And collecting on steep contango in about every product we touch.
We were determined in the middle of the pandemic to.
To make money not make excuses.
You fast forward to today and the environment and sentiment.
Golden Bleakly a different.
In the second quarter crude average $28, a barrel and as we all know.
Traded severely negative on April 22020.
Almost overnight rig counts dropped from 800 to less than 250 producers shut in significant amounts of production and the Texas Railroad Commission.
A monacan held on online hearing on a mandatory proration.
That was attended by a 35000 people worldwide.
I gave testimony to this hearing.
It was very straightforward.
And probably wouldn't have been as much so had a known we had 30.
<unk> thousand people listening.
The day WTS, it's at $72.
Natural gas is more than double from a $1.75 to around $4 <unk>.
Rig counts have returned to 500 and growing <unk>.
Producers are south of that on answering your capital paying down debt and returning funds to the shareholders.
Just give me an idea for a couple of key products. We won't go through all of them. This time last year ethane was selling at 18 cents a gallon today its 33.
Propane moved from 35%.
Today, it's what a $1 non Brent.
Even with natural gas.
Gas prices are gross processing spreads in the Permian in particular have gone from around 22.
To 50 cents a gallon.
Finding too significantly increasing demand wholesale gasoline is moving from 75.
The $2 it was as low as 50 in March of last year.
In refining utilization is moving from an anemic, 70% at a low to over 90%.
Crude and product inventories have gone from a hard to imagine 3.6 billion barrels at.
600 million barrels overstocked to below normal levels of 2.8 billion.
And continuing to fall.
A economies are recovering and demand for virtually everything is increasing worldwide pressuring supply chains.
While our cash flow, while our cash flows a markedly different largely because of the movement all commodities from steep contango into backwardation.
Our businesses on our employees proved time and time again that they will perform regardless of the environment are today and what feels like something like a hyper growth while a press release, there's a lot of details on this way.
During last year's collapse, we lean hard on our marketing teams.
And we said at the time on storage was worth it worth it worth its weight in gold as we took advantage of steep contango Arvind a system, coupled with a significant cost cutting by our operations.
This year with prices and volumes up considerably our assets are who is leading the way.
<unk>, a significant increases in volume for gathering and processing.
<unk> transportation.
Exports in what are generally described its described as a fairly steady.
Moving to an update on Capex capital, we expect our growth capital for 2021 to be 1.7 we havent change I don't think Randy.
For the rest a 'twenty 1.
Continue to be on schedule to complete our Acadian gas system to give us the expansion of our ethylene and propylene pipeline systems and the construction of our natural gasoline Audrey treater.
A growth Capex in 'twenty, 2 and 'twenty 3.
Projects currently sanctioned.
With $800 million and $400 million respect a respectfully respectively.
But we expect these to increase of some of the projects under developer development are sanctioned.
The long dated capital just more of a larger around our PVH.
We couldnt be more pleased with a market fundamentals and momentum.
That we see in our petrochemicals business.
The reopening a global economies has caused a surge in demand for propylene due to high demand from durables, which has caused a refinery grade to polymer grade spread to widen from 15 cents a pound historically 40 cents a pound a pet.
Chemicals and refined products segment contributed 5 totaled 6 financial and operational records.
A strong performance of our petrochemicals business was led by a propylene segment, which offset lower results from our octane enhancement through a plant due to a planned turnaround on.
A mountain Bell the propylene splitter.
Splitters achieve.
<unk> achieved record throughput at a 98% a nameplate.
Strong margins in our PVH plant operated at an average of 112% a nameplate following the planned maintenance in the first quarter.
Finally, we recently closed on a transaction acquiring the ethylene storage business no.
This transaction, although it didn't take a lot of cash as meaningful and debt. It is yet another milestone in the development of our petrochemical hubs, which is which is a key and furthering our petrochemical growth strategy.
We feel very good about our strong position.
Our momentum and a <unk>.
Midstream petrochemical space, we're pleased with how our assets on our people performed again last quarter, we've been outspoken about while we have been bullish on prices for well over a year and have been preparing accordingly, the global inventory excesses that came with a global pandemic.
For the most part been exhausted.
And it's a nice to see both supply and demand participating in what we will we believe will be a very strong extended recovery cycle. We expect continued upside in demand both in the U S and globally and a appropriate production increases from a healthy.
LTE U S E&P industry that Randy.
Thank you Jim and good morning, everyone.
First of all I'll hit some of the income statement items.
Net income attributable to common unit holders for the second quarter of 2021 was $1.1 billion or 50.
A common.
On a fully diluted basis. This compares to $1 billion or a 47 per common unit.
For the second quarter, a 2020 net income was reduced by noncash impairment charges of 1 penny per fully diluted unit both for the second quarter of 2010.
A unit on the second quarter of 2021, moving on to cash flows cash flows from operations increased to $2 billion for the second quarter compared to $1.2 billion for the second quarter of 2020, the swing in cash.
Provided by or used for working.
Apple accounts between the 2 quarters explained <unk> $731 million or 90% of the increase so again changes in working capital accounts free cash flow for the 12 months ended June 32021, and again, we define that as cash flow from operations less invested.
Besting activities less distributions paid out to non controlling interest in our joint venture.
On our projects was $4.2 billion.
Compared to $2.7 billion for the comparable trailing 12 months.
Ended June 32020, we declared.
Working <unk> on a 45 cents per common unit with respect to the second quarter, a 2021 that will be paid on August 12.
This distribution represents a 1.1% increase compared to the second quarter a 2020.
<unk> distribution reinvestment plan and employee unit purchase plan.
In addition.
Purchased a combined $38 million or approximately $1.6 million bpd common units in the open market during the second quarter.
Our payout ratio, which we define as the sum of our cash distributions.
And buybacks as a percent.
<unk> flow from operations over the.
Trailing 12 months was 60% as of June 32021.
Compared to the latest available data, which is 12 months ending March 31, 2021 for <unk>.
Our non <unk>.
Peer midstream.
A cash horse and Mlps.
Enterprise had 1 of the highest payout percentages.
In the near term, while we wait for better visibility on federal regulatory and tax policies as it pertains to the energy industry and as we assess the potential opportunities in <unk>.
Related capital requirements for energy evolution projects, we are continuing to make financial flexibility our priority at the margin. However, we do plan to Opportunistically buy back common units in the second half of this year the amount of the buyback would probably be comparable to the.
$6 million, we purchased in 2020.
Turning to capitalization, our total debt principal outstanding was approximately $28.8 billion as of June 30, assuming the first fall first call day or the final maturity date for our hybrids the average.
The average life of our debt portfolio was 16, 5 years and 28 years, respectively. Our effective average cost of debt is 4.5%.
Adjusted EBITDA for the second quarter, a 2021 was $2 billion and $8.4 billion for the.
<unk> months ended our consolidated leverage was 3 to 4 times after adjusting.
Debt for the partial equity a trip.
Equity content attributed to the hybrid debt securities.
And further reduced by any unrestricted cash on our consolidated liquidity.
A 12, approximately $5.4 billion at June 30, including availability under our existing credit facilities.
On approximately $400 million of unrestricted cash on hand.
Finally, we expect to publish our annual sustainability report update.
Which.
<unk> will be intended to supplement our 2019.2020 sustainability report.
Next Monday on August 2nd the report will be available on our website.
We hope you have an opportunity to read it and we look forward to publishing our next.
Report in the summer of 2022.
With that Randy I think we're ready for questions. Okay. Thank you Shannon, we're ready to take questions from a participants.
Thank you as a reminder to ask a question you will need a press star 1 on your telephone.
A question press the pound key.
Could you please limit yourself to 1 question and 1 follow up.
Please standby, while we compile the Q&A roster.
Our first question comes from Jeremy Tonet with Jpmorgan. Your line is open.
Hi, good morning.
Good morning.
Just wanted to follow up on the energy evolution initiatives there as it relates to carbon capture and just wondering if you might be able to provide.
A little bit more detail I guess on what you see as possible. There is this something kind of.
In the ship channel itself, a hub concept do you see that as something that is possible at some point in the future and if so where do you think the carbon could be stored do you think it's more of an onshore offshore solution.
Okay.
I guess it could be low.
We're looking at what we think are some low hanging fruit.
And then we're looking along with a.
A major chemical company, a major oil company as to what we could do.
Debt.
You can make a case sequestered offshore but.
Completed reservoirs.
In the Permian and Tony and so I mean, we're still we're still in infancy stage, but we are beginning to see that there might be some low hanging fruit that we could take advantage of.
Got it that makes sense I was just curious if.
Poor.
Issues onshore kind of influence the decision onshore versus offshore them, but just also curious I guess what type of timeline do you think that this could be really materialized over it seems like we're really on the infancy here if the Texas Railroad Commission gets kind of primacy on the classics wells that could really change things a bit here and if we.
More federal legislation within a 45 acute at 85 that could really change things here, but I'm curious as far as what you think the timeline is for things coming together here.
Well, it's not immediate pressure on it.
Yes. It is.
Given the amount of regulation that's in front of US anything short of 3 years would surprise.
<unk> Angie you feel any different.
I think thats about right on timing.
Got it I'll leave it there thank you.
Thank you. Our next question comes from Jean Ann Salisbury with Bernstein. Your line is open.
Hi, Good morning, a couple of questions about the quarter.
Your NGL pipeline gross margin was down 8% to 10% on occasionally run rate then.
It is really a reference lower rates on volumes on Dixie in Napa and also some downtime, but it wasn't clear to me how much was 1 off income that's just kind of ongoing day to lower rates and can you expand on that.
Okay.
Sure.
<unk> was impacted about a hydro test so that'd be a call that a 1 off.
Alright.
Okay.
Okay.
For the quarter I guess that segment, when it's kind of a 555 and it's been a while.
A L. Since you've been in that low a couple of years. So just trying to figure out if that can be by new norm.
But some for the hydro test.
Yes.
This is Randy I think there were also some.
We've got an integrated system so to the extent, we have NGL fracs down as.
I think we may have had some downtime overall norco that that could also impact the volumes moving across south Louisiana system too so there might be some ripple effects.
Yes, I think Lee takes probably a belief was down.
Okay. That's helpful. Thank you.
And then my other question on it.
Well a prices year to date has obviously been very strong, but it hasn't seemed to really hit your processing gross margin can you kind a talk about why that is because gas prices up against on your pads or something else.
I guess in terms of Ngls, Jamie This is Bryan.
We have.
Have some keep whole exposure.
But it's probably not as much as some of our peers.
So last year I don't think in terms of when prices were very low.
Wasn't probably nearly as impactful to us as it was the others on the same same vein when prices.
I've been a higher.
And we probably don't benefit us.
As much as others would do benefit obviously.
The benefit that we have is more of a delayed effect.
In terms of what we see on volume so that ultimately kind of what drives our business is it's not just those higher prices as a gas to crude ratio that where we see benefits.
That's on other parts of our business.
And G&A on 1 other impact may be out there as well.
At the processing plant, we lent to extract ethane.
We may be working on variable economics, as far as extracting that ethane which would.
Not the benefit would not be reflected at the at the processing plants, if anything it would be a cost associated with that as a processing plants.
And you would get benefit on your downstream assets.
So that actually makes a ton of that.
And that's operating thanks a lot.
Thank you. Our next question comes from Shneur <unk>.
<unk> with UBS Your line is open.
Hi, good morning, everyone.
I appreciated the commentary on the prepared remarks today about returning capital to.
A unit holders, including the $200 million of buybacks for this year.
Randy you spent a bit of time on my part today kind of highlighting a 60% payout ratio.
<unk>.
Kind of a on a trailing 12 month basis for CFO.
Which does include buybacks.
Kind of wondering if as you feel more comfortable with policy outlook and so forth, whether we could be thinking about 60% is kind of a sign post.
Ideally like the payout.
To kind of shake out with with buybacks being a portion of it for now.
Just a 'twenty 1 but for like 'twenty, 2 and beyond just kind a curious how youre thinking about that.
Yes.
Cheniere I'll have to go back in and I know, we've got a slide in the deck.
In our investor deck that shows.
Those over time, what our percent payout has been as a percentage of cash flow from operations.
Some of Thats impacted Bob.
Changes of cash.
Cash used or provided by working capital accounts. So it will move around depending on how much how.
We have tied up in.
And working capital.
But typically I mean, if you go back and look over time I want to say that I'm going off memory that is probably ranged from.
A 55% to 65% so I think thats a range I don't think we're going to come in and get precise dialed.
A much money to a percentage that almost be like a tail walking on the dog I think some of it is more of what's going on in the business what kind of cash flows are we seeing being thrown off.
I don't think we're going to get as precise as 60 or 61 or 62%, but it would be more on a ryan.
<unk>.
Okay that makes sense perfect appreciate that.
A sort of a follow up to.
How are you thinking about Capex for 2002, I understand that in a million a sanction projects in addition to spot on.
Are there any larger scale projects that you're evaluating whether it.
On energy evolution or kind of on the on the base business its expense today, but.
Are there any projects that you're evaluating or even in the permitting process that could move the number by more than 500 billion for next year.
Kind of curious where you are in terms of what you are evaluating right now.
Yes.
Right.
I'll kick off with this Shneur and then see if Jim wants to add we had.
And really going back to I think our January call that we were working on a few projects that we just for a commercial sensitivity, we weren't going to provide a lot of.
A detail and that's still where we are in a day.
Can't provide a lot of detail but.
But those.
We'll see COVID-19 coming in and add to 2022, yes. It could.
It could be in a $500 million incremental area.
But.
Yes, I'll go back to what Jim said in the.
Call back in.
<unk> come around so a quick in April I guess, where he said if you think longer term.
Something in the billion $5.2 billion run rate could be.
In the near term what you could see.
Our growth Capex I don't know if we'd get to that number for next year, but.
But I think Thats a good go by.
Okay.
Re clarify so 1.5 to 2 is kind of the range, but hard to kind a hit the top of the range next year.
I hate to underestimate.
Our guidance, but yes.
We feel we'd have to hurry.
Right.
Okay now that makes perfect sense really appreciate the color on debt.
Have a great day guys. Thank you. Thank you.
Our next question comes from Tristan Richardson with <unk> Securities. Your line is open.
Hey, good morning, guys.
Just.
From a marketing on the pet Chem business strong results, there, particularly on the propylene and PTH side, clearly past few quarters have had some turnarounds and downtime but.
Just looking at this quarter based on what Youre seeing from.
A spread perspective is this a good general run rate for gross margin and the spread is available to you and in facilities or our online highly utilized.
In the near term I think we're going to be.
Hanging in here with this kind of a result.
Results Chris.
Okay.
Yes, Jim I agree.
We should be on a same run rate with everything running in refinery utilization hanging in there.
I've talked to a couple of Ceos from petrochemical companies and what they bought said to me is there a running full out and they can't catch up.
So a what.
A kind of like that business and products.
She has to do more things in it.
That's great and then.
I think you've talked historically you guys have talked about.
On any given year, there might be 500 to 800 million a spread.
<unk>.
I think as the most recent quarter kind of talked about potentially 2021 being north of 600 curious.
If that's still a north of 600 is a comfortable a comfortable figure or how we should think about how that's changed over the past quarter.
North of 6.
It will be conservative.
I appreciate it thanks Jim.
Yeah.
Thank you as a reminder to ask a question you will need a press star 1 on your touched on telephone.
Our next question comes from Keith Stanley with Wolfe Research. Your line is open.
Hi, good morning.
Centers, just wanted to clarify the demand response items so that.
The total benefit it looks like for Q2 was 66 million in the release and Thats across the fractionation and that's the way and then also I just want to confirm that that's incremental to the $250 million Uri gain you talked about last.
First right.
Yeah. So yeah, I think what we are.
Probably in total we're looking at about $300 million in total.
And then in the.
In the.
The second quarter.
The benefit was probably around.
On a quarter 70.
And some of the.
A reason why you didn't see that hit until the second quarter and frankly, we were waiting on clarity from the state of Texas as far as what's.
Fourth a definitive.
Settlement was going to be around ERCOT and around a large program.
Got it Okay..1 follow up question on on capital allocation.
So just looking back you raise a distributions slightly in Q4 of last year.
Should we expect a similar timing for distribution growth announcements and I.
Youre thinking about distribution growth generally into next year versus buybacks as part of the capital return story.
Yes, Keith I think the board comes in and I mean, we take a look at the distribution every quarter.
But.
Here's the last 2 or.
Harry years, we've done it where we come in and really announced the increase.
In January for the next year and.
I think we would probably stick to that I don't I don't think.
A cast in stone.
If you.
3 if you will.
As far as the whole thing on on distributions versus buybacks, we're an MLP the most.
Tax efficient way to return capital and cash to your partners is through distributions and that's what we've done.
We've got this is the third year in a row.
Debt, we've increased our cash distribution in the eye, there's not another midstream company out there that I know that can say that.
Distributions are really our first go to as far as on the buyback.
Syed I think.
Right.
As a.
Sure.
Options Professor.
<unk> talked a onetime.
<unk>.
It depends on what's your level of Capex is an and.
And I think we need to see not only level a capex.
Opex, we just need to get some better visibility on government policy because right now they are.
Yeah.
There's just a lot a question marks.
I thought we would have known something by now, but it looks like ex.
A dragon out so I think a lot of a lot of things go into the.
The cash.
Coming in and doing buybacks and but I think we've demonstrated.
Our willingness to come in and do buybacks.
We're just going to be deliberate in the way that we leg into it.
Thank you.
Thank you. Our next question comes from Christine Cho with Barclays. Your line is open.
A.
Thank you.
Maybe if I could start with debt.
LPG.
Market.
There has been market reports that you guys have been buying back cargoes. In recent weeks is this is this just marketing your marketing subsidiary preparing for what could potentially be a short propane market in the coming.
<unk>.
It seems like the amount that you've been buying back is more than what you are a ph facility to take but.
Any kind of color on what you guys are thinking that would be helpful.
Hey, Christine I'll start and give it to Brent.
We bought back because the base for too cheap, we could make more money doing something else with a propane Brent.
I mean it day in day, we look at every molecule with a value of it is to enterprise versus what we did across the dock.
And what we achieve across the dock isn't worth what we have keep it in a system.
Now could some of this potentially going into storage for like later I mean, the curve is backward dated so it just didn't seem.
Seem like you would be able to hedge things out.
Yes, I wouldn't look at it as a.
Storage, Florida, Okay.
And then could you give an update around spot just where the regulatory processes. What the next milestones are especially if it's a.
If it's to hit 22 Capex.
And just given the.
<unk> for overall U S production growth isn't what it used to be can you just go over your thoughts on why spot is necessary.
And would you still need your crude export facilities, along the Gulf or would you look to potentially repurpose those assets for something else.
Yeah, I think 1 of the things we still believe supply there is something that we.
That is.
Needed a servicer.
It's kind of a magnet for things through your pipeline system.
But we've got a strong anchor and I think we've got some interest from others.
<unk>.
We expect the final EIS.
To come out I think it is ready.
On the coast Guard and the line.
Last thing we heard a premier Ed is to expect a.
The permit in the fourth quarter.
But yes, we feel like it's a project that we can build as a project in phases.
We intend to debt.
And would you still keep your existing crude facilities along the Gulf.
Im sorry, Christine you did.
I think what we're looking at a need to expand our LPG capability out of the ship channel.
So that's why as Bob Sanders in here.
Yes.
You talked to him.
We're looking at we've got some expense.
Pension projects on our LPG facility on the ship channel.
We have a lot a long term contract.
Our on enterprise assets and so we'd have joint venture partners on on the VLCC terminal.
There's still there's still a need for what we have.
Of existing and then it would be more of a optimization as a relates to up to a joint venture partners, but between pet Cam and Ngls theres ways to use those docs.
It's a crude oil got.
Got it thank you.
Thank you. Our next question comes from Michael Lapides with Goldman.
Man Sachs. Your line is open hey, guys. Thanks for taking my question.
A little bit of a theoretical 1 how do you think when you think about capital allocation versus capex and whether that capital allocation is deleveraging buybacks or even just nor.
A normal course distribution growth or a special distribution.
Payouts, how do you think about what your cost a capitalist and what is the return on new project has to hit to make it kind of a more valuable use of cash relative to some of the other alternatives.
Yes, Michael Im glad you asked that because.
I was actually incomplete with answer earlier.
Because that's 1 of the things a factors in there is when we come in and look at our Capex and cash.
A few coming on and you look.
At the buyback.
When you.
Look at what our return on capital is on the project, but we also look at what the.
The downstream benefits are from a project that again, we run a value chain system. So if we add a <unk>.
<unk> it has the ability to come in and add incremental volumes and incremental margin to other part of our system. So that adds on to.
The project economics, and we look at that whole holistic return and also.
Zone, it increases EBITDA as well.
Compared to a buyback I mean, we.
As I look this morning, I think we were yielding I don't know a $7.7 5% on our coverage is about 1.
1.5.
So I think rough math is probably between 11 and a 12%.
Cash yield if you think about it from if I go back to distributable cash flow because again thats subtracting out maintenance capex. So.
That's the bogey that we look at on the buyback side.
And those are the 2 of the returns that we that we look at just from a from a return threshold.
Got it.
Does that cover on all for you, yes that helps a ton.
Just trying to think about.
Special distributions are there any.
Are there any reasons.
Why special distributions would ever be off the table.
Yeah.
Michael we've not really contemplated them in the past.
<unk>.
I mean, a little bit I'll turn that question on <unk>. It seems like a lot of what I read and sales side.
Reports really dismisses.
The effectiveness of special distributions if you're.
And I understand not being able to come in.
The inability for.
For the for the equity markets to capitalize a special distribution into the unit.
Unit price, but frankly.
Our guys ran some correlation analysis the other day.
It's crazy to me that.
When you come back in and you pick the period 3 years 5 years 10 years.
We actually have a our unit price has a.
Inverse correlation to cash flow per unit. It has an inverse correlation to EBITDA.
And really the only correlation the highest correlation that it has is to the price of the XL Lee the S&P energy sector. So a scratch my.
Any way that the cash that we generate.
Unit price and correlated to the cash that we generate anyway. So.
We're in a little bit of a quandary. So I don't know if a special distribution would be good or bad because I don't know what our unit price correlates to anymore, but I go back to what I've said earlier.
Head, most efficient tax efficient way to get cash and turn capital to limited partners is through distributions.
Understood. Thank.
Thank you guys much appreciate it.
Thank you. Our next question comes from Gabe Moreen with Mizuho.
Your line is open.
Hey, good morning, everyone. Recently, there was I guess, 1 of your peers announced a JV transaction with a private equity backed gathering system I'm, just wondering if something like that because of interest potentially maybe circumvent some of them I think.
Antitrust issues, you've raised in the past just curious.
Hello, Bob.
Our thoughts on debt transaction.
Specifically, if it might make sense in either the Permian or an overpriced areas like the Eagle Ford for example, with a consolidated the sector when private equity owns quite a bit of assets out there.
Yes, we never say never.
Sure.
Randy.
So we had a entire is all a dime.
To that I don't know I don't know that we would be interest in the joint venture with a private equity.
I would tell you we're spending a lot of time right now and looking at a pipeline system and trying to determine what are the opportunities to.
To repurpose.
But yes I mean.
We look at everything.
But I can't see us doing a joint venture with a private equity can you Brent.
Moving to your comment never say never but.
Yes.
There's a lot of opportunities that we look at and we'll see what comes of it.
Got it and then maybe if I can just a follow up and ask on specific.
A new work as it pertains to randy's comments about kind of waiting for a definitive stuff.
Stuff out of DC on policy.
What should we be looking for or is it really just tax rates are you looking kind of for the I guess, the federal permitting the infrastructure build all of the above I'm, specifically wondering kind a what.
Those things.
Typically that's most prominent I guess on your line.
Yes, I think it's all of the above.
And.
Some of it even you could come in and say it's even.
I think the energy industry is in a little bit of conundrum.
Hey, Randy to talk.
<unk>.
Focus on supply not on demand yes.
Good on that because if you come in on last count.
There are like a 194 countries in the EU debt have signed on to the Paris accounts.
And part of that is.
And part of that is coming in and trying to get to a net zero emissions by 2050.
But.
None none of those countries.
Enacted any policies address too.
All.
About estimate.
And it seems like the policies that are being driven or more on supply.
And more really I think in the U S. What we've seen thus far this year.
On a really on domestic supply and but not anything on demand.
Oil and gas and you come back in I think what we've heard out on E ticket IEA EIA is the expectation is we're going to be back to a 100 million barrels a day a credit demand by the end of the year.
And.
Looking for that demand to grow I think again no matter what what.
Sure.
But you look at looking for crude oil demand to grow for the rest of the decade.
At least.
And but really the only policies out there domestically or on supply constraints.
So where that leaves us and I think we've.
We've seen it to a degree.
They are going to end up with higher crude oil price was higher motor gasoline prices.
Across the board, which will be inflationary but.
We're at a little bit of a conundrum on on energy policy in the country as well.
The other thing that.
Well because.
Because I mean.
In the most recent example is I guess.
Some of this has been going on since since January.
Domestically, we've come in and.
We're.
Putting a freeze on permits on federal lands, but we're asking OPEC plus to come in and.
A produce more oil so oil prices won't go up.
And so.
Okay.
Again, just a head scratcher.
And.
But I think when you come in and you look.
The World OPEC plus countries they have the capacity to produce more oil and they have.
The capacity to come in in and respond to demand again, I think it's going to be at a higher price and you've seen recently, whether it's the.
Saudi oil minister or the.
On the Prime Minister on Norway, and I believe Norway as part of the Paris climate agreement.
Bumps that that theyre going to drill and withdraw every last barrel of oil that they have in the ground.
No.
So I think theres, just a lot of unknowns out there.
Early on in this.
Energy evolution, we think we've got a role to play in fact when we.
We look at midstream companies.
On this whole energy evolution, and a handful in carbon sequestration and hydrogen.
We might be 1 of the early on that we can respond quicker than that a lot of companies that are trying to do this from the get go because we've already got pipes everywhere, we know geology. So.
<unk>.
Again, we just need some more clarity, whether it's tax policy regulatory policy energy policy.
And then and then frankly I think the other things that will be out there is just what we're seeing there is so much changes going on at the FTC as well.
But I mean thats more of a broad comment on it doesn't matter. If you are in energy.
A year end debt as far as what's coming on.
I mean, how the government on that regard to.
Didn't mean to get on my soapbox to EBITDA.
Just again waiting on a little bit more clarity.
And but that's not net but we will come in and act on opportunities as we see them going forward.
Got it thanks a lot.
Okay.
I appreciate all those thoughts thank you.
Thank you and I'm currently showing no further questions at this time.
Okay.
Thank you Shannon.
With that we will conclude the call today, and if you wouldn't mind.
Could you please give a participants the replay information and thank you all for joining us today.
Thank you. This concludes today's call a replay will be available from 1 o'clock P. M. Eastern time July 22021 to 12.59 P. M. Eastern time August 4th 2021.
Please use the dollar.
Shannon ATI 5 a 592056 or 4 zero for a 5373 for a 6.4 international participants enter access code 90, 690.418, Thank you and have a wonderful day.
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Good day, and thank you goodbye.
Welcome to the enterprise products partners L. P second quarter 2021 earnings conference call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
A question during the session you will need a press star 1 of your telephone. Please be advised that today's conference is being recorded if you acquire any further assistance. Please I'm sorry zero I would now like turn the conference over to your speaker today Randy Burkhart.
A colder vice President of Investor Relations. Please go ahead.
Thank you Shannon good morning, and welcome everyone to the enterprise products Partners Conference call to discuss second quarter 2021 earnings our speakers today will be co chief executive officers of Enterprise's General partner, Jim Teague and Randy Fowler.
Other members.
<unk> Senior management team are also on attendance for the call today.
During this call we will make forward looking statements within the meaning of section 21 E. A the security Securities and Exchange Act a 1934 based on the beliefs of the company as well as assumptions made by and information currently available to enterprises management team.
Although management believes that the expectations reflected in such forward looking statements are reasonable it can 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 on a forward looking statements made during this call.
And with that I'll turn it over to Jim.
Thank you Randy.
[laughter].
We can do our businesses continued to perform extremely extremely well during the second quarter, we reported over $2 billion EBITDA.
For the second quarter, our distributable cash flow was.
1.6 times coverage.
Cash flow from operations for a second quarter was $2 billion, which more than fully funded both our capital Capex and our distributions. So as we sit halfway through the year, our distributable cash flow totaled $3.3 billion, providing $1.35 billion in retained cash.
Cash.
Second quarter results reflect the ongoing recovery in demand for hydrocarbons as the global economy continues to reopen from Covid Lockdowns.
Our liquids pipelines transported 6.4 million barrels a day and a second quarter our natural gas.
Pipelines transported $4.2 billion Btu's a day.
For the second quarter net equals.
2019 volumes.
Summing it all up in crude oil equivalent we transported $10.2 million barrels a day.
A fractionation volumes remained strong at or near record.
1.2 million barrels a day, a propylene production for a second quarter. A 2021 was a record 113000 barrels a day and.
Liquid volumes handled by a marine terminals for the second quarter, a $1.6 million barrels a day, which continues to lag.
And they make.
For a prepay.
Pre pandemic first quarter 'twenty performance.
2 million barrels a day, primarily due to weakness in crude oil exports.
Really this would be expected a strong prices backward dated market and lower inventories at Cushing are signaling debt volume needs to stay at home at least for now.
In short it shows that markets work.
This time last year, we were slipping deeper into the pandemic.
It looked and felt like a black hole to some but by this time last year.
Had already returned to our headquarters office.
What was virtually an empty.
Downtown Houston.
We set protocols.
We started wearing mask before they were mandated.
We put plexiglass around our cubicles.
We anticipate on.
Keeping a distance and.
And we have enhanced sanitizers.
All over the building.
But I really think it was a competitive advantage being back.
As we worked as a team we moved products for our customers and our producers.
We were buying and selling <unk>.
<unk> in the system.
And collecting on steep contango antibody.
As a product we touch.
We were determined in the middle of the pandemic.
To make money not making excuses.
You fast forward to today, and the environment and sentiment a completely different.
In the second quarter crude average $28, a barrel and as we all know.
Every weighted severely negative on April 22020.
Almost overnight rig counts dropped from 800 to less than 250 producers shut in significant amounts of production and the Texas Railroad Commission held on online hearing on a mandatory proration that was attended by a 35000.
If a worldwide.
I gave testimony to this hearing.
And that was very straightforward.
And probably wouldn't have been as much so had a known we had 35000 people listening.
The day WC assets at $72.
Natural gas is more.
A double from a $1.75 to around $4 <unk>.
<unk> counts have returned to 500 and growing <unk>.
Producers are south of that enhancing your capital paying down debt and returning funds to their shareholders.
Just give me an idea for a couple of key products. We won't go through all of them. This time last year ethane, we're selling at.
<unk> 18, a gallon today its 33.
Propane moved from 35.
Today, it's what a $1.9 Brent.
Even when natural gas prices up though our gross processing spreads in the Permian in particular have gone from around 22.
More than the 50 cents a gallon.
Responding to significantly increasing demand wholesale gasoline is moving from 75.
The $2. It was as low as 50 in March of last year and refining utilization is moving from an anemic, 70% at a low to over 90%.
Crude and product inventories have gone from a hard to imagine $3.6 billion barrels at.
At least 600 million barrels overstock to below normal levels of $2.8 billion and continuing to fall.
The economies are recovering and demand for virtually everything.
As increasing worldwide.
Pressuring supply chains.
While our cash flow, while our cash flows are markedly different largely because of the movement all commodities from speak.
Tango into backwardation, our businesses on our employees proved time and time again that they will perform regardless of the environment.
Our today on what feels like something like a hyper growth.
A press release, there's a lot of details a bullet this way.
During last year's collapse.
Lean hard on our marketing teams and we said at the time, our storage was worth it worth it worth its weight in gold.
We took advantage of steep.
Gov Arb into system, coupled with a significant cost cutting by our operations.
This year with prices and volumes up considerably our assets are who is leading the way with significant increases in volume for gathering and processing.
<unk> transportation.
And exports.
What I will generate scabbed describe is fairly steady.
Moving to an update on Capex capital, we expect our growth capital for 2021 to be 1.7 we haven't changed I don't think Randy for the rest a 'twenty 1 will continue to be on schedule to complete our Acadian gas system to give us.
The expansion of our ethylene and propylene pipeline systems and the construction of our natural gasoline hydrate treater.
Growth Capex in 'twenty, 2 and 'twenty 3.
Projects currently sanctioned is $800 million and $400 million respect a respectfully respectively.
But we expect these to increase.
Some of the projects under developer development are sanctioned.
A long dated capital just more of a larger around our PD H 2 weeks.
We couldnt be more pleased with a market fundamentals and the momentum that we see in our petrochemicals business.
The reopening a global economies has caused a surge in demand.
A setup line due to high demand from durables, which has caused a refinery grade to polymer grade spread to widen from 15 cents a pound historically.
40 cents, a pound a petrochemicals and refined products segment contributed 5 totaled 6 financial and operational records.
<unk> strong performance of our petrochemicals business was led by a propylene segment, which offset lower results from our octane enhancement through a point due to a planned turnaround.
Our mountain Bell the propylene splitter splitters.
<unk> record throughput of 98% a nameplate.
With strong margins in our PVH.
And operated at an average of 112% a nameplate following the planned maintenance in the first quarter.
Finally, we recently closed on a transaction acquiring the ethylene storage business low though.
This transaction, although it didn't take a lot of cash is meaningful and that it is yet another milestone.
Each plant and the development of our petrochemical hubs, which is a which is a key and furthering our petrochemical growth strategy, we feel very good about our strong position in our.
Momentum in the midstream petrochemical space, we're pleased with how our assets on our people performed again.
Again last quarter, we've been outspoken about while we have been bullish on prices for well over a year and have been preparing accordingly, the global inventory excesses that came with a global pandemic up for the most part been exhausted and it's a nice to see both supply and demand participating in what we.
But we believe will be a very strong extended recovery cycle. We expect continued upside in demand both in the U S and globally and appropriate production increases from a healthy U S E&P industry.
Randy.
Thank you Jim and good morning, everyone.
First.
First of all I'll hit some of the income statement items.
Net income attributable to common unit holders for the second quarter of 2021 was $1.1 billion or 50.
A common unit on a fully diluted basis. This compares to $1 billion or <unk> 47 per common unit.
For the second quarter of 2020 net income was reduced by a noncash impairment charges.
1 penny per fully diluted unit, both for the second quarter of 2020, and a second quarter of 2021 moving on to cash flows cash flows from operations increase.
<unk> $2 billion for the second quarter compared to $1.2 billion for the second quarter of 2020, the swing in cash.
Provided by or used for working capital accounts between the 2 quarters explained $731 million or 90%.
So again changes in working capital accounts free cash flow for the 12 months ended June 32021, and again, we define that as cash flow from operations less investing activities lastly distributions paid out to non controlling interest in our joint venture.
On the index was $4.2 billion.
Compared to $2.7 billion for the comparable trailing 12 months.
Ended June 32020, we declared a distribution a 45 cents per common unit with respect to the second quarter of 2021 that will be paid on August 12.
This distribution represents a 1.1% increase compared to the second quarter a 2020.
<unk> distribution reinvestment plan and employee unit purchase plan.
<unk> purchased a combined $38 million or approximately 1.
<unk> million dollars PPD common units in the open market during the second quarter.
Our payout ratio, which we define as the sum of our cash distributions.
And buybacks as a percent of cash flow from operations over the.
Trailing 12 months was 60% as.
6 June 32021.
Compared to the latest available data, which is 12 months ending March 31.2021 for.
Our non <unk>.
Your midstream C Corp, and the Mlps.
Enterprise had 1 of the highest payout percentages.
In the.
Firm, while we wait for better visibility on federal regulatory and tax policies as it pertains to the energy industry and as we assess the potential opportunities and related capital requirements for energy evolution projects, we are continuing to make financial flexibility.
Ability our priority at the margin.
However, we do plan to Opportunistically buy back common units in the second half of this year the amount of the buyback would probably be comparable to the $200 million we purchased in 2020.
Turning to capitalization our total debt.
Near 4 outstanding was approximately $28.8 billion as of June 30, assuming the first fall first call date or the final maturity date for our hybrids. The average life of our debt portfolio was 16.5 years and 28 years, respectively are.
Our effective average cost of debt is 4.5% a.
Adjusted EBITDA for the second quarter of 2021 was $2 billion and $8.4 billion for the 12 months ended our consolidated leverage was 3 to 4 times after adjusting.
Principal debt for the partial equity a trip.
Equity content attributed to the hybrid debt securities.
And further reduced by any unrestricted cash on our consolidated liquidity was approximately $5.4 billion at June 30, including availability under our existing credit facilities.
<unk>.
And approximately $400 million of unrestricted cash on hand.
Finally, we expect to publish our annual sustainability report update.
Which is intended to supplement our 2019.2020 sustainability report.
<unk>.
On August the.
A report will be available on our website.
We hope you have an opportunity to read it and we look forward to publishing our next lease.
A port in the summer of 2022 with that Randy I think we're ready for questions. Okay. Thank you.
And we are ready to take questions from our participants.
<unk>.
Thank you as a reminder to ask a question you will need a press star 1 on your telephone to withdraw your question press the pound key.
Could you please limit yourself to 1 question and 1 follow up please standby, while we compile the Q&A roster.
Our first question comes from Jeremy Tonet with Jpmorgan. Your line is open.
<unk> hi, good morning.
Morning.
Just wanted to follow up on the energy evolution initiatives there as it relates to carbon capture and just wondering if you might be able to provide a little bit more detail I guess on what you see as possible. There is this something kind of.
In the ship channel itself a hub.
Concept do you.
Do you see that as something that is possible at some point in the future.
Do you see that as something that is possible at some point in the future.
So where do you think the carbon could be stored do you think it's more of an onshore offshore solution.
I guess it could be low.
Sure.
We're looking at what we think are some low hanging fruit.
And then we're looking along with a.
A major chemical company a major a.
A copy to as to what we could do beyond debt.
And you can make a case sequestered offshore, but you've got depleted reservoirs.
In the Permian and Tony and so I mean, we're still we're still in the infancy stage, but we are beginning.
We see that there might be some low hanging fruit that we could take advantage of.
Yeah.
Got it that makes sense I was just curious if.
Sure.
Issues onshore kind of influence the decision onshore versus offshore them, but just also curious I guess what type of timeline.
You think that this could.
<unk>.
Really materialized over it seems like we're really in the infancy here.
If the Texas Railroad Commission gets kind of primacy on the classics wells that could really change things a bit here and if we get more federal legislation within a 45 acute 85 that could really change things here, but I'm curious as far as what you think the timeline is for things coming together.
Here well its not immediate for sure Tony again here it is.
Given the amount of regulation that's in front of US anything short of 3 years, which surprised me Angie you feel any different.
I think thats about right on timing.
Got it I'll leave it there thank you.
Thank you. Our next question comes from Jean Ann Salisbury with Bernstein. Your line is open.
Hi, Good morning, a couple of questions about the quarter.
NGL pipeline gross margin was down 10% on occasionally run rate the news release reference low rates and volumes on Dixie in Napa and also.
Some downtime, but it wasn't clear to me how much of a 1 off and comments just kind of ongoing day to lower rates.
Can you expand on that.
Yes.
Good.
<unk> was impacted we had a hydro test so that would be a I'll call that a 1 off.
But.
Okay.
Okay.
For the quarter I guess that segment when it's kind of 555 and it's been awhile since you've been in Atlanta, a couple of years.
Just trying to figure out at that day by name.
Norm.
But some for the hydro test.
Yes.
This is Randy I think there were also some.
We've got an integrated system so to the extent, we have NGL fracs down as well I think we may have had some downtime overall norco that that can also impact the volumes moving across south Louisiana system too so there might be some ripple effects as well.
And secondly, it takes probably a belief was down.
Okay.
Thank you.
Then my other question on it.
On the NGL prices year to date has obviously been very strong, but it hasn't seemed to really hit your processing gross margin can you kind a talk about why that is because gas prices on <unk>.
Or something else.
I'm not a question in terms of Ngls Jean Ann This is Brad.
We have some keep whole exposure.
But it's probably not as much as some of our peers.
So last year I don't think in terms of when prices were very.
A low.
It wasn't probably nearly as impactful to us as it was the others in the same same vein when prices have.
I've been a higher.
We probably don't benefit us.
As much as others would do benefit obviously.
The benefit that we have is more of a delayed effect.
In terms of what we.
Volume, so that ultimately kind of what drives our business is it's not just those high prices ex that gas to crude ratio that where we see benefits in other parts of our business.
And G&A on 1 other impact may be out there as well or is it if it's at the processing plant we lent to.
Extract ethane and we may be working on variable economics as far as extracting that ethane, which would not be the benefit would not be reflected at the at the processing plants if anything.
It would be a cost associated with that as a processing plants and you would get a benefit on your downstream.
So you also have.
How does that excellent expense benefit.
That's all for me Thanks, a lot.
Thank you. Our next question comes from Shneur <unk> with UBS. Your line is open.
Hi, good morning, everyone.
The commentary on the prepared remarks today about returning capital to unitholders.
During that including a $200 million buybacks for this year.
Randy you spent a bit a time on spot market day kind of highlighting a 60% payout ratio kind of a on a trailing 12 month basis for CFO.
Which does include buybacks.
Kind of wondering as you feel more comfortable.
On the policy outlook, and so forth, whether we could be thinking about 60% is kind of a sign post.
Ideally like the payout.
To kind of shake out with with buybacks being a portion of it for not just 'twenty, 1 but for like 'twenty, 2 and beyond just kind a curious how youre thinking about that.
Yes.
Cheniere I'll have to go back in and I know, we've got a slide in the deck.
In our investor deck that shows over time, what our percent payout has been as a percentage of cash flow from operations.
A thats impacted Bob.
Change is a cash used or provided by working capital accounts. So it will move around depending on how much how much money, we have tied up in.
And working capital.
But typically I mean, if you go back and look over time I want to say that I'm going off memory that is probably ranged.
55% to 65%, so I think Thats a range I don't think we're going to come in and get a precise dialed in to a percentage that almost be like <unk> on the dog I think some of it is more of what's going on in the business what kind of cash flows are we seeing.
From being thrown off.
I don't think we're going to get as precise as 60, or 61 or 62%, but it would be more on a range.
Okay that makes sense perfect appreciate that.
And then sort of a follow up too high.
How youre thinking about Capex for 2000.
Do you understand that entered a sanction projects in addition to spot.
Are there any larger scale projects that you're evaluating whether it's on energy evolution.
Kind of on the on the base business its expense today, but.
Are there any projects that you're evaluating or even in the permitting process that could.
A number by more than 500 volume for next year, just kind a curious where you are in terms of whats you are evaluating right now.
Yes.
I'll kick off with this Shneur and then see if Jim wants to add.
We had mentioned really going back to I think our January call.
Call that we were working on a few projects that we just for a commercial sensitivity, we weren't going to provide a lot of.
A detail and Thats still where we are in a day.
I can't provide a lot of detail but.
But those.
We'll see it coming on.
On an add to 2022, yes it could.
It could be in the $500 million incremental area.
But.
Go back to what Jim said.
Said in the.
Call back in.
<unk> come around so a quick in April I guess, where he said if you think long.
A longer term.
Something in the billion $5.2 billion run rate could be.
In the near term what you could see our growth Capex I don't know if we'd get to that number for next year, but.
But I think Thats a good go by.
Okay.
We clarified so.
1.5 to 2 is kind of the range, but hard to kind a hit the top of the range next year.
I hate to underestimate our guidance, but yes.
We feel we'd have to hurry.
Okay.
Okay now that makes perfect sense really appreciate the color on debt.
Have a great. Thanks guys.
Thank you.
Our next question comes from Tristan Richardson with true a securities. Your line is open.
Hey, good morning, guys.
Just a.
We're marketing on the pet Chem business strong results, there, particularly on the propylene and PTH side clearly pass.
Last few quarters have had some turnarounds in and downtime but.
Just looking at this quarter based on what you're seeing from a spread perspective is this a good general run rate for gross margin when when this when the spread is available to you and in facilities or our online and Eylea utilized.
Yes.
In the near term I think we're going to be hanging in here with this kind of results Chris.
Yes, Jim I agree.
We should be on a same run rate with everything running in refinery utilization hanging in there.
Well I was.
I've talked to a couple of Ceos from petrochemical companies and what they bought said EMEA is running full out and they can't catch up.
So.
What kind of like that business.
She has to do more things on it.
That's great and then.
Thank you.
Historically, you guys have talked about.
Now on any given year, there might be 500 to 800 million a above <unk>.
Spread opportunities.
As of the most recent quarter kind of talked about potentially 2021 being north of 600 curious.
If that's still a.
Talk more with a 600 is a comfortable comfortable figure or how we should think about how that's changed over the past quarter.
North of 600 will be conservative.
I appreciate it thanks, Tim.
Thank you as a reminder to ask a question you will.
I need to press star 1 on your touch on telephone.
Our next question comes from Keith Stanley with Wolfe Research. Your line is open.
Hi, good morning.
First just wanted to clarify the demand response items so the.
The total benefit it looks like for Q2 with a 66 million in the release and Thats across.
The fractionation and net Seaway and then also I just want to confirm that that's incremental to the $250 million Gary gain you talked about last quarter right.
So, yes, I think what we're <unk>.
In total we're looking at about $300 million in total.
And then in the.
In the.
The second quarter.
70.
And in some of the.
Reason why you didn't see that hit until the second quarter and frankly, we were waiting on clarity.
From the state of Texas as far as both.
Both a definitive.
The settlement was going to be around ERCOT and around a large program.
Got it okay.
1 follow up question on on capital allocation.
So just looking back you've raised the distributions.
In Q4 last year should should we expect a similar timing for distribution growth announcements and I guess, how are you thinking about distribution growth generally into next year versus buybacks as part of the capital return story.
Yes, Keith.
Slightly the board comes in and we take a look at the distribution every quarter.
But.
Here's the last 2 or 3 years, we've done it where we come in and really announced the increase.
In January for the next year.
<unk>.
I think we would probably stick to that I don't I don't think.
A cast in stone.
If you if you.
As far as the whole thing on on distributions versus buybacks.
Or an MLP the most.
Taxes.
I think way to return capital and cash to your partners is through distributions.
And that's what we've done I think we've got this is the third year in a row.
That we've increased our cash distribution and theres not another.
Another midstream company.
Company out there that I know that can say that so does.
Distributions are really our first go to as far as on the buyback side.
<unk>.
Okay.
As a.
Options Professor.
<unk> talked a onetime it depends.
Yes.
Hands on what's your level of Capex is an and.
And I think we need to see not only level a capex, we just need to get some better visibility on government policy because right now they are.
There's just a lot a question marks.
I thought we would have known something.
By now, but it looks like ex.
Dragon out so I think a lot a lot of things go into the <unk>.
The calculus of coming in and do buybacks, but I think we've demonstrated.
Our willingness to come in and do buybacks, but we're just going to be deliberate in the way that we leg into it.
Thank you.
Thank you. Our next question comes from Christine Cho with Barclays. Your line is open.
Thank you.
So maybe if I could start.
On the LPG.
Market.
There has been market reports that you guys have been buying back cargo.
In recent weeks is this is this just marketing your marketing subsidiary preparing for what could potentially be a short propane market in the coming months. It seems like the amount that you've been buying back is more than what your PTH facility could take but any kind of color on what you guys are thinking there would be helpful.
Christina.
Starting to give it to Brent.
We bought back because the base for too cheap, we could make more money doing something else with a propane Brent.
I mean it day in day, we looked at every molecule with a value of it is to enterprise versus what we get across the dock.
And what we achieve across the dock isn't worth what we have keep it in a system.
No.
Now could some of this potentially going into a storage for like later I mean, the curve is backward dated so it just didn't seem like you would be able to hedge things out.
I Wouldnt look at as a.
As a storage Florida.
Hey.
And then could you give an update around spot just.
I guess my processes, what the next milestones are especially as it at that.
Turning to Capex.
And just given expectations for overall U S production growth isn't what it used to be can you just go over your thoughts on why spot if necessary and low.
You still need a crude ex particularly following the call.
Or would you look to potentially on the purpose of this assets for something else.
I think 1 of the things we still believe spud is something that we.
That is needed is serves a scan.
A magnet for things through your pipeline system.
We've got a strong anchor and I think we've got some interest from others.
<unk>.
We expect the final EIS.
To come out I think it is ready.
On the Coast Guard and the last thing we heard from Marriott is to expect.
A permit and a fourth quarter.
But yes, we feel like it's a project that we can build as a projected phases and that's.
Intended.
And would you still keep your existing crude facilities along the Gulf on.
I'm sorry, Christine you did ask that I think we made that we're looking at a need to expand our LPG capability out of the ship channel. So that's why as Bob Sanders in here.
Yeah.
You talked to him.
Uh huh.
We're looking at we've got some expansion projects on our LPG facility on the ship channel.
We have a lot a long term contracts.
Our on enterprise assets and so we have joint venture.
Hardeners on on the VLCC terminal.
There's still there's still a need for what we have existing and then it would be more of a optimization as it relates to the joint venture partners, but.
Quite calm and Ngls theres ways to use those docs such crude oil.
Got it thank you.
Yes.
Thank you. Our next question comes from Michael a piece with Goldman Sachs. Your line is open hey, guys.
Guys. Thanks for taking my question.
A little bit of a theoretical 1 how do you think when you think about capital allocation versus Capex and.
A capital allocation is deleveraging buybacks or even just.
Normal course distribution growth or a special distribution payouts, how do you think about what your cost a capitalist and what is the return on new project has to hit to make it kind of a more valuable use of cash relative to some of the other alternatives.
And whether that Michael.
Michael I'm glad you asked that because.
I was actually incomplete with answer earlier.
Because that's 1 of the things that factors in there is when we come in and look at our Capex and if you're coming in and you look at the buyback.
When you.
Look at what our return.
On capital is on the project, but we also look at what the.
The downstream benefits are from a project that again, we run a value chain system. So if we add a project it has the ability to come in and add increment.
On volumes and incremental margin to other part of our system so that adds on to.
The project economics, and we look at that whole holistic return and also adds on to it.
Increases EBITDA as well.
Compared to a buyback.
Income I think.
This morning, I think we were yielding I don't know a 775% on our coverage is about 1.5 times. So I think a rough math is probably between 11 and a 12%.
Cash yield if you think about it from if I go back to distributable cash flow because again.
Tracking out maintenance Capex so that's.
That's the that's the bogey that we look at on the buyback side.
And those are the 2 of the returns that we that we look at just from a from a return threshold.
Got it.
Does that cover on all for you, yes that.
That's a ton and just trying to think about it.
A special distributions are there any.
Are there any reasons why special distributions would ever be off the table.
Yeah.
Michael we've not really contemplated them in the past.
That helps.
A little bit I'll turn that question on <unk>. It seems like a lot of what I read in sell side reports really dismisses.
The effectiveness of special distributions if youre.
And I understand not being able to come in.
The inability.
Sure.
For the for the equity markets to capitalize a special distribution into the unit price, but frankly.
Our guys brands some correlation analysis the other day.
Yes.
It's crazy to me.
When you come.
<unk> in and you pick the period 3 years 5 years 10 years.
We actually have a our unit price has a inverse correlation to cash flow per unit. It has an inverse correlation to EBITDA.
And really the only correlation the highest correlation that it has.
Backs as to the price of the ex <unk>, the S&P energy sector. So a scratch my head anyway that the cash that we generate.
Our unit price and correlated to the cash that we generate anyway. So.
We're in a little bit of a laundry. So I don't know if a special distribution.
Hands would be good or bad because I don't know, what our unit price correlates to anymore on it.
Go back to what I've said earlier, the most efficient tax efficient way to get cash and turn capital to limited partners is through distributions.
Understood.
Thank you.
Much appreciate it.
Thank you. Our next question comes from Gabe Moreen with Mizuho. Your line is open.
Hey, good morning, everyone recently, there was a I guess 1 of your peers announced a JV transaction with a private equity backed gathering system I'm, just wondering if something like.
That is of interest potentially maybe circumvent some of them I think.
Antitrust issues you've raised in the past just curious for your thoughts on that.
Our thoughts on debt transaction.
Yes, specifically, if it might make sense in either the Permian or an overpriced areas like the Eagle Ford for example, with a consolidated.
2 when private equity owns quite a bit of assets out there.
Yes, we never say never.
Uh huh.
Randy we're kicking tires on all the time.
So to that I don't know I don't know that we would be interested in the joint venture with a private equity.
I would tell you we're spending a lot of time right now looking at a pipeline system.
Trying to determine what are the opportunities.
To repurpose.
But yes I mean.
We look at everything, but I can't see us doing a joint venture with a private equity can you Brent.
To your comment never say never but.
Yes.
There's a lot on.
<unk> is such that we looked at it and we'll see what comes of it.
Got it and then maybe if I can just a follow up and ask specifically as it pertains to randy's comments about kind of waiting for a definitive.
Stuff out of DC on policy.
What should we be looking for is it really just tax rates are you looking kind of for.
Opportunity to I guess, the federal permitting infrastructure build all of the above I'm, just specifically wondering kind a what.
All of those things, what's most prominent I guess on your line.
Yes, Hey, Bob.
I think it's all of the above.
Okay.
Some of it even you could come in and say it's even.
We're on.
The energy industry is in a little bit of conundrum.
Hey, Randy to talk about the focus on supply is not on demand, yes because.
Good on that because if you come in a last count.
There are like a 194 countries.
<unk> in the EU that have signed on to the Paris accounts.
And part of that is.
And part of that is coming in and trying to get to net zero emissions by 2050.
<unk>.
Non.
None of those countries.
Oil and gas demand.
And it seems like the policies that are being driven or more on supply.
And more really.
In the U S. What we've.
Seen thus far this year.
A really on domestic supply and but not anything on demand.
And you come back and I think what we've heard out on E ticket IEA EIA is the expectation is we're going to be back to a 100 million barrels a day of crude demand by the end of the year and.
<unk>.
Looking for that demand to grow I think again no matter what.
What.
On.
But you look at looking for crude oil demand growth for the rest of the decade.
At least.
But really the only policies out.
Domestically or on supply constraints.
So where that leads us and I think we've.
We've seen it to a degree.
It's going to end up with higher crude oil prices higher motor gasoline prices.
Across the board, which will be inflationary but.
We're at a little bit of a conundrum.
On on energy policy in the country as well.
The other thing debt.
Well.
Because I mean, the most recent example is I guess with some of this has been going on since the since January.
Domestically, we've come in and.
We are.
Putting a freeze on permits on federal lands, but we're asking OPEC plus to come in and produce more oil so oil prices wont go up and so.
Again, just a head scratcher.
And.
But I think when you come in on.
You look.
The World OPEC plus countries. They have the capacity to produce more oil and they have the capacity to come in and respond to demand again, I think it's going to be at a higher price.
<unk> seen recently, whether it's the.
Saudi.
We'll administer or.
The Prime Minister on Norway, and I believe Norway as part of the Paris climate agreement it bumps that that theyre going to drill and withdraw every last barrel of oil that they have in the ground.
We are.
So I think Theyre just.
Saudi a lot of unknowns out there.
We're early on in this.
Energy evolution, we think we've got a role to play in fact, when we look at midstream companies.
On this whole energy evolution and handle on carbon sequestration and hydrogen.
We might be 1 of the early on that we can respond.
A quicker than that a lot of companies that are trying to do this from the get go because we already have pipes everywhere and we know geology. So.
Again, we just need some more clarity.
Other its tax policy regulatory policy energy policy.
And then frankly I think the other thing that will be out there is just what we're seeing.
Seeing there is so much changes going on at the FTC as well.
But I mean thats more of a broad comment on it doesn't matter. If you are in energy are intact as far as what's coming on.
I mean, how the government on that regard to subs.
Didn't mean to get on my soapbox to EBIT.
Just again waiting on a little bit more clarity.
And but that's not yet, but we will come in and act on opportunities as we see them on forward.
Got it thanks.
Okay.
I appreciate all those thoughts thank you.
Thank you and I'm currently showing no further questions at this time.
Okay.
Thank you Shannon.
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