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EPD--Excellent Analysis Wells Fargo--• Permian Basin Growth. In Permian Basin, current natural gas and crude oil/condensate production is ~19 Bcf/d and 5 MMBbls/d, respectively, and Enterprise forecasts 2027 production could reach 28 Bcf/d and 7.5 MMBbls/d under its base case scenario. • Why Navitas? Management provided several reasons for its Navitas acquisition, which included: (1) gaining Midland Basin exposure, (2) customer base (i.e. mix included Midland centric private producers that are growing production), (3) additional commodity exposure (i.e. percent-ofproceeds contracts with floor margin), and (4) downstream synergies (i.e. connections to residue natural gas and NGL pipelines). For the additional commodity exposure, EPD estimates about 20 MBbls/d is related to NGLs and condensate (each) and 75 MMcf/d is natural gas. • Uncontracted Permian Gas Takeaway. EPD will have ~300 MMcf/d of un-contracted capacity available in 2023 that it's likely to use for spot marketing opportunities but could potentially be recontract under long-term agreements (we see this as less likely). • Shin Oak NGL Pipeline Expansion Potential. Enterprise noted that Shin Oak’s capacity can be increased to 610 MBbls/d from 550 MBbls/d by optimizing the hydraulics on the pipeline. • Capital Allocation—Favoring Distribution Growth Over Buybacks. Management reafirmed its capital allocation strategy, which focused on maintaining a strong balance sheet, investing in high return organic growth capex projects, distribution growth, and stock buybacks. While the capital allocation slide did not emphasize one over the other, we believe EPD made a subtle argument for why it favors distribution growth over buybacks. The partnership highlighted that 32% of its units are owned the Duncan family and 45% are held by individuals and trusts, Further, 49% of its ownership base has held units for 5 years or more (though that number includes the Duncan family’s 32% ownership), • Potential To Add Incremental Permian Gas Takeaway. The company is looking at opportunities to re-purpose unutilized pipes that would provide incremental natural gas takeaway capacity from the Permian. However, management noted that it's unlikely to announce a project in the near term. • Project 11—Houston Ship Channel (HSC) Expansion. Enterprise highlighted an expansion of the Houston Ship Channel that will widen the channel from 530 feet to 700 feet by Q2’24. Upon completion, the expansion will increase daylight transit hours (by moving the restriction point further into the HSC) and allow for larger vessels (up to 1,250 feet in length). For EPD, this is expected to allow the company to handle an additional 6-7 cargoes per month at its EHT facility. • Seaway Pipeline. The Seaway Pipeline (a 50/50 JV with Enbridge) is well positioned to accommodate growth in crude oil production from Western Canada. Enterprise believes a potential expansion of the pipeline could be needed as early as 2024. The pipeline has low cost expansion opportunities (via pump station additions) to increase capacity by 300 MBbls/d. • LPG Export Capacity. EPD’s LPG export facility is almost fully contracted for 2022 and has contracts that start to roll o in 2023 with more meaningful rollovers occurring in 2024 and 2025. Management is starting to look at 2023 contracting and sees upward pressure on rates for renewals in 2024 and 2025 (as it expects capacity to tighten and more expansions will be needed). • SPOT Project. Management continues to work through the permitting process for the SPOT project. The company believes it’s a strategic project for its crude oil portfolio as it expects it to be a magnet for demand (e.g. will fill up available crude oil capacity on EPD’s pipes, provides customers with another market choice and can fully load VLCCs). |
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