Company Reports

Israel has launched strikes against Iran in retaliation for an attack on April 14 (see our April 15 note for more analysis). The limited scope of Israel’s attack, which also included targets in Syria and Iraq; Iran's subdued response; and the ample warning Israel provided confirm our view that both parties wish to de-escalate tensions. We’d characterize this as a de-escalation attack. This view is in line with broader US and Group of Seven goals.

We believe the Iranian drone and missile attack on Israel over the weekend places some additional stress on the oil markets. However, the ample warning from Iran ahead of time publicly and privately amid rising geopolitical tensions means the attack was already reflected via a higher geopolitical risk premium in oil prices, in our view. We attribute nearly all of the increase in oil prices to around $91 a barrel from the mid-70s in February to geopolitical concerns versus supply risks. On the supply side, Saudi Arabia and OPEC+ have about 5 million barrels per day of supply—if not more—that can be returned to the oil markets if prices were to overheat and spike well above $100 a barrel. We expect there to be more downside risks than upside at the moment to oil prices. In fact, we see higher potential to touch $75 by the end of 2024 versus a sustained movement beyond $100 a barrel.

Geographical and asset diversity allows Enterprise Products Partners to pursue growth in nearly any environment. It can aggregate supply of every type of hydrocarbon from multiple sources in major producing basins and deliver it to multiple end markets (refiners, petrochemicals, exports). Its robust marketing operations let it clip transaction-fee-like earnings during volatile oil and gas markets like we saw with winter storm Uri in 2021. Enterprise placed $3.5 billion of projects in service in 2023 and looks to invest a similar amount in 2024, which will provide solid volumes growth and new fees.

Enterprise Products Partners' fourth-quarter results were disappointing, but we expect to maintain our $27.50 fair value estimate and wide moat rating. EBITDA for the full year was $9.3 billion, essentially the same as the previous year’s level, whereas our estimate was closer to $9.5 billion. We attribute the difference to lower marketing profits, largely due to weaker natural gas liquids and natural gas pricing.

Enterprise's geographical and asset diversity allow it to pursue growth in nearly any environment. It can aggregate supply of every type of hydrocarbon from multiple sources in major producing basins and deliver it to multiple end markets (refiners, petrochemicals, exports). Its robust marketing operations let it clip transaction-fee-like earnings during volatile oil and gas markets like we saw with winter storm Uri in 2021. With marketing spreads narrowing across the gas and petrochemicals markets, we expect Enterprise's marketing performance to be weaker in 2023 than in 2022, though the outlook for the second half of 2023 has improved.

Enterprise’s 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 geographical and asset diversity allow it to pursue growth in nearly any environment. It can aggregate supply of every type of hydrocarbon from multiple sources in major producing basins and deliver it to multiple end markets (refiners, petrochemicals, exports). Its robust marketing operations let it clip transaction-fee-like earnings during volatile oil and gas markets like we saw with winter storm Uri in 2021. With marketing spreads narrowing across the gas and petrochemicals markets, we expect Enterprise's marketing performance to be weaker in 2023 than in 2022, though the outlook for the second half of 2023 has improved.

Enterprise’s 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.

Enterprise's geographical and asset diversity allow it to pursue growth in nearly any environment. It can aggregate supply of every type of hydrocarbon from multiple sources in major producing basins and deliver it to multiple end markets (refiners, petrochemicals, exports). Its robust marketing operations let it clip transaction-fee-like earnings during volatile oil and gas markets like we saw with winter storm Uri in 2021. With marketing spreads narrowing across the gas and petrochemicals markets, we expect Enterprise's marketing performance to be weaker in 2023 than in 2022, though the outlook for the second half of 2023 has improved.

Enterprise’s first-quarter results largely met our expectations, as unexpected strength in the petrochemicals unit was offset by weak natural gas liquids marketing contributions. The weaker marketing profits were anticipated as the spreads materially narrowed beginning in late 2022. Overall EBITDA was up slightly to $2.3 billion from $2.26 billion last year. With the partnership still on track to meet our full-year expectations of $9.2 billion in EBITDA, we will leave our $27.50 fair value estimate and wide moat rating unchanged.

One of the more interesting and material projects Enterprise Products Partners has been engaged in over the past few years is the Sea Port Oil Terminal. SPOT is an offshore oil export terminal that could move up to 2 million barrels per day and materially change the demand-pull dynamics of oil toward the Gulf Coast if approved. SPOT has been a work in progress since 2019 and is not included in our model. If approved by Enterprise, we estimate it could contribute about $500 million in annual EBITDA based on a full cost of $3 billion-$4 billion. Enterprise has obtained several approvals already, and another license from the U.S. Maritime Administration could arrive this summer. As Enterprise has yet to make a final investment decision on SPOT, our $27.50 fair value estimate and wide moat rating are unchanged.

Enterprise's asset and geographical diversity allow it to pursue growth in virtually any environment. It can aggregate supply of every type of hydrocarbon from multiple sources in major producing basins and deliver it to multiple end markets (refiners, petrochemicals, exports). Its robust marketing operations let it clip transaction-fee-like earnings during volatile oil and gas markets like we saw with winter storm Uri in 2021. With marketing spreads narrowing across the gas and petrochemicals markets, we expect Enterprise's marketing performance to be weaker in 2023 than its very strong 2022.

Enterprise's asset and geographical diversity allow it to pursue growth in virtually any environment. It can aggregate supply of every type of hydrocarbon from multiple sources in major producing basins and deliver it to multiple end markets (refiners, petrochemicals, exports). Its robust marketing operations let it clip transaction-fee-like earnings during volatile oil and gas markets like we saw with winter storm Uri in 2021. With the current extreme volatility in 2022 that has rolled over into 2023 across the oil, gas, and natural gas liquids markets, we expect the marketing unit to do well.

The diversity of Enterprise's business shielded the firm from more difficult industry conditions for the time being, and we think its fourth-quarter results were strong. We expect to maintain our $27.50 per share fair value estimate and wide-moat rating. Companywide EBITDA improved to $2.4 billion for the quarter, up 14% year over year, mainly due to strength in the natural gas liquids and natural gas business, offset somewhat by weaker results from the oil and petrochemicals units. Full-year EBITDA was $9.3 billion, while 2023 forecasts look to be in the same range.

Enterprise’s third-quarter results benefited from healthy volume growth across its natural gas liquids, oil, and gas business, and contributions from the recently completed Navitas deal. The gains were more than enough to boost gross operating margin to $2.3 billion from $2.1 billion last year and offset weaker volumes and margins from its petrochemicals business. After updating our model, we will maintain our $27.50 fair value estimate and wide moat rating.

Enterprise's asset and geographical diversity allow it to pursue growth in virtually any environment. In the current spending environment, the pivot is toward petrochemicals. It can aggregate supply of every type of hydrocarbon from multiple sources in major producing basins and deliver it to multiple end markets (refiners, petrochemicals, exports). Its robust marketing operations let it clip transaction-fee-like earnings during volatile oil and gas markets, like we saw with winter storm Uri in 2021. With the current extreme volatility in 2022 across the oil, gas, and natural gas liquids markets, we expect the marketing unit to do well.

Enterprise Products Partners’ second-quarter results were healthy, as the full benefits of the Navitas deal flowed through to drive earnings improvements. Distributable cash flow was up 30% year over year to $2 billion. With Navitas and other earnings drivers, 2022 EBITDA is now expected to top $9 billion, an incremental $300 million-$400 million improvement. While we had initially modeled in Navitas' contributions, the difference looks to be better-than-expected fees across gathering and processing operations due to the high oil and gas price environment. After updating our model, our fair value estimate of $27.50 remains unchanged, as does our wide-moat rating.

Enterprise's asset and geographical diversity allow it to pursue growth in virtually any environment. In the current spending environment, the pivot is toward petrochemicals. It can aggregate supply of every type of hydrocarbon from multiple sources in major producing basins and deliver it to multiple end markets (refiners, petrochemicals, exports). Its robust marketing operations let it clip transaction-fee-like earnings during volatile oil and gas markets, like we saw with winter storm Uri in 2021. With the current extreme volatility in 2022 across the oil, gas, and natural gas liquids markets, we expect the marketing unit to do well.

Enterprise Products Partners' first-quarter results were good, as the firm benefited from its recent leaning into commodity price tailwinds with the acquisition of Navitas Midstream. Based on these results, we do not expect to change our fair value estimate or wide moat rating. Higher commodity prices and margins in gathering and processing showed the most strength year over year, helped by a modest contribution from the Navitas deal, which was completed Feb. 17, nearly offset by a drop in natural gas pipeline earnings due to the absence of winter storm Uri contributions. We think the timing of the Navitas deal was excellent, as we expect very healthy near-term oil and gas prices, a key factor driving results, which should augur well for the returns on Enterprise’s $3.25 billion investment. Petrochemicals were also strong, with higher sales volumes, pricing, and reduced downtime the primary factors. Overall, adjusted EBITDA of $2.3 billion increased slightly from last year’s levels.

The United States’ plan to increase liquefied natural gas, or LNG, supplies to Europe is flawed because it only addresses flows, not increasing U.S. LNG capacity. We see the efforts primarily focused on shifting spot market flows to Europe as allowed under existing U.S. contracts instead of making any material changes to the overall market. Efforts to expedite an increase in U.S. capacity have yet to be addressed from a regulatory or market standpoint, as the next major LNG capacity expansion is expected in 2024. Cheniere’s Corpus Christi Stage III, where we expect a final investment decision this summer and is already in our model, is expected online in 2027. If Cheniere were to pursue an incremental LNG expansion beyond Stage III, it would be 2029 or 2030 before it entered service. We think nearly all U.S. LNG suppliers are faced with a similar situation. Our wide moat rating and fair value estimate remain unchanged for the Cheniere entities.