Tuesday, February 8, 2022

Pipeline Earnings ($MMP $EPD) - 2021

[Previously regarding pipeline investments: Hydrocarbon Royalties and Pipelines, Magellan Midstream Partners, L.P. (MMP), and  Pipeline Earnings - Q3 2021.]

Some great comments on our pipeline companies' fourth quarter earnings calls. Start with the CEO of Enterprise Products, Jim Teague, on the EPD Q4 call:

I'll finish with our thoughts on the changing sentiments around oil and gas. For some time now, the sentiment toward all traditional forms of energy, especially in political circles has been very negative. Many said that the world should pull the plug on traditional energy as soon as possible and completely devote our capital and efforts toward renewable energy.

Without a doubt, this was always naive. The world now realizes that an overnight transition to renewable sources of energy is not at all possible as evidenced by the rapid development of various global crises, including high natural gas and LNG prices, high crude oil prices and not seen since 2014 and runaway inflation, not seen for about 40 years. Europe is starved for gas and is faced with heat or eat, while Russia, with its major oil and gas supplier, is amassing troops on the Ukraine border. Try as you may, it's hard to blame this crisis on the pandemic.

Over one-third of the world lives in energy poverty, mainly in developing countries. Europe's energy policies have now made energy poverty a reality in first-world countries. As an oil analyst said, energy is the economy. We, in the United States, live in a country of plenty.

We are a rich nation with the high quality of life of creative culture, now also blessed with abundant energy. Maybe that has distorted our thinking about the situation in other countries or regions. People who don't want developing nations to have what we have are either in denial, hypocrites, or both. At Enterprise, we've been outspoken that is going to take all of the above, not for a few years, but for decades to come.

Look to comments made by a variety of sources, everyone from the IEA to the head of Saudi Aramco, members of the European Union, and even the U.S. energy secretary. Ultimately, they all message the same thing. Investment in oil and gas needs to ramp up sharply in order to provide the badly needed baseload traditional sources of energy that will be needed alongside low carbon fuels and green energy to meet the world's growing demand.

And then the CEO of Magellan, Michael Mears, had an amusing comment on the MMP Q4 call about the

James Carreker
Okay. I thought that might be the case. Just wanted to clarify. And then I guess, kind of, a big picture question, and I know we've gotten away from talking about growth versus normal and x growth projects. But when you look at the 2022 refined product outlook, I guess taking into account growth projects that you put into place, like how normal does that feel relative to, say, 2019 levels? Does that feel like we fully caught up? Do you think there's still some parts of the economy holding back when you look at that 2022 number?

Mike Mears
Well, I don't have the numbers in front of me, but I think just directionally, on gasoline, we aren't quite back to 2019 numbers. Diesel fuel is strong and probably above 2019 numbers, and jet fuel, obviously, still not back to 2019 numbers. But I don't have any kind of percentages on my fingertips here to give you on that. And when I say gasoline is not there. I'm not talking about a big miss, I'm talking about it's not above where we were in 2019. And I think -- and again, and I've talked about this before, it really gets into the geography. I mean, as I said, in the rural markets, it's there. In the cities it hasn't quite gotten back there. I mean you still have businesses that don't have people back to work, which is surprising to us, but it's true. And so I think there's still a little bit of a lag there.

Here are the valuation figures and earnings projections last time we checked on EPD and MMP in November:

  • EPD market cap was $50 billion and EV was $78 billion. For the first nine months of 2021, Enterprise had earned $3.6 billion, had $6.3 billion of EBITDA, and $4.9 billion of distributable cash flow. The first nine months' annualized earnings ($4.8 billion) looked like an 9.6% earnings yield.
  • MMP market cap was $11.3 billion and EV was $16.7 billion. For the first nine months of 2021, Magellan earned $738 million, had $1 billion of EBITDA, and $821 million of "distributable" cash flow after maintenance capital expenditures. They had paid $685 million of distributions and repurchased $473 million of LP units for a total of $1.16 billion returned to shareholders through the third quarter. Their first nine months' annualized earnings ($984 million, FY 2021 guidance of $975 million) looked like an 8.7% earnings yield.

MMP ended up earning $982 million in 2021, including $244 million in the fourth quarter. The current earnings yield is 9.4% with the stock basically unchanged since early November. During fourth quarter 2021, the partnership repurchased nearly 1.1 million of its common units for $50 million, resulting in a total of 10.9 million units repurchased during 2021 for $523 million.

EPD ended up earning $4.6 billion and had distributable cash flow of $6.6 billion. The current earnings yield is 8.7% with the stock up about 5% since early November.


CP said...

Enterprise Products
We generated $6.6 billion of DCF in '21, compared to $6.4 million in 2020. We had 1.7 times coverage. We retained $2.6 billion of DCF in '21 and head into '22 with significant financial flexibility. We also increased our distribution again in 2021 to $1.815 per common unit, making this the 23rd consecutive year of distribution growth since our IPO in 1998.

In addition, 2021 marked another year of records for Enterprise, including 12 financial records and five operating records. Our NGL pipelines and services and Natural Gas Pipelines and Services segments set gross operating margin records. We've also been focused on growing our Petrochemicals and Refined Products Services segment, which had a record gross operating margin of $1.4 billion for 2021 with a huge contribution in petrochemicals, where gross operating margin exceeded $1 billion for 2021. We set five operational performance records in '21, including record ethane marine volumes, record natural gas transportation volumes, record refined products and petrochemical transportation volumes, record propylene production volumes -- and record propylene production volumes.

CP said...

Magellan Midstream
Magellan does not intend to provide specific financial guidance beyond 2022 at this time but expects annual DCF to improve over the next few years, based on an assumption of modest annual increases in refined products demand in the markets it serves, benefits of a higher inflationary environment on its tariff rates and continued strength in commodity prices. Given management's current expectation that FCF after distributions will generally be used to repurchase units (subject to the considerations noted in "Capital allocation" above), DCF per unit is expected to increase at a higher rate than DCF.

CP said...

Tortoise Midstream Energy Fund (NTG)

-17.83% discount to NAV