ENTERPRISE PRODUCTS PARTNERS LP: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS. (form 10-Q)
For the three and six months ended June 30, 2021 and 2020
The following information should be read in conjunction with our Unaudited
Condensed Consolidated Financial Statements and accompanying Notes included in
this quarterly report on Form 10-Q and the Audited Consolidated Financial
Statements and related Notes, together with our discussion and analysis of
financial position and results of operations, included in our annual report on
Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"), as filed
on March 1, 2021 with the U.S. Securities and Exchange Commission ("SEC"). Our
financial statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") in the United States ("U.S.").
Caution regarding forward-looking information
This quarterly report on Form 10-Q for the six months ended June 30, 2021 (our
"quarterly report") contains various forward-looking statements and information
that are based on our beliefs and those of our general partner, as well as
assumptions made by us and information currently available to us. When used in
this document, words such as "anticipate," "project," "expect," "plan," "seek,"
"goal," "estimate," "forecast," "intend," "could," "should," "would," "will,"
"believe," "may," "scheduled," "potential" and similar expressions and
statements regarding our plans and objectives for future operations are intended
to identify forward-looking statements. Although we and our general partner
believe that our expectations reflected in such forward-looking statements
(including any forward-looking statements/expectations of third parties
referenced in this quarterly report) are reasonable, neither we nor our general
partner can give any assurances that such expectations will prove to be
Forward-looking statements are subject to a variety of risks (including those
attributable to the Coronavirus disease 2019 ("COVID-19") pandemic),
uncertainties and assumptions as described in more detail under Part I, Item 1A
of our 2020 Form 10-K. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, our actual results
may vary materially from those anticipated, estimated, projected or
expected. You should not put undue reliance on any forward-looking
statements. The forward-looking statements in this quarterly report speak only
as of the date hereof. Except as required by federal and state securities laws,
we undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or any other
Key references used in this management report
Unless the context indicates otherwise, references to “we”, “us” or “our” in this quarterly report are intended to refer to the activities and operations of Company Products Partners LP and its consolidated subsidiaries.
References to “Partnership” mean Company Products Partners LP on a stand-alone basis.
References to "EPO" mean Enterprise Products Operating LLC, which is an indirect
wholly owned subsidiary of the Partnership, and its consolidated subsidiaries,
through which the Partnership conducts its business. We are managed by our
general partner, Enterprise Products Holdings LLC ("Enterprise GP"), which is a
wholly owned subsidiary of Dan Duncan LLC, a privately held Texas limited
The membership interests of Dan Duncan LLC are owned by a voting trust, the
current trustees ("DD LLC Trustees") of which are: (i) Randa Duncan Williams,
who is also a director and Chairman of the Board of Directors (the "Board") of
Enterprise GP; (ii) Richard H. Bachmann, who is also a director and Vice
Chairman of the Board of Enterprise GP; and (iii) W. Randall Fowler, who is also
a director and the Co-Chief Executive Officer and Chief Financial Officer of
Enterprise GP. Ms. Duncan Williams and Messrs. Bachmann and Fowler also
currently serve as managers of Dan Duncan LLC.
References to "EPCO" mean Enterprise Products Company, a privately held Texas
corporation, and its privately held affiliates. The outstanding voting capital
stock of EPCO is owned by a voting trust, the current trustees ("EPCO Trustees")
of which are: (i) Ms. Duncan Williams, who serves as Chairman of EPCO; (ii) Mr.
Bachmann, who serves as the President and Chief Executive Officer of EPCO; and
(iii) Mr. Fowler, who serves as an Executive Vice President and the Chief
Financial Officer of EPCO. Ms. Duncan Williams and Messrs. Bachmann and Fowler
also currently serve as directors of EPCO.
We, Enterprise GP, EPCO and Dan Duncan LLC are affiliates under the collective
common control of the DD LLC Trustees and the EPCO Trustees. EPCO, together
with its privately held affiliates, owned approximately 32.1% of the
Partnership's common units outstanding at June 30, 2021. In March 2021, a
privately held affiliate of EPCO sold its entire ownership interest in the
Partnership's Series A Cumulative Convertible Preferred Units ("preferred
units") to third parties.
As generally used in the energy industry and in this quarterly report, the acronyms below have the following meanings:
/d = per day MMBPD = million barrels per day
BBtus = billion British thermal units MMBtus = million British thermal units
Bcf = billion cubic feet MMcf = million cubic feet
BPD = barrels per day MWac = megawatts, alternating
MBPD = thousand barrels per day MWdc = megawatts, direct current MMBbls = millions of barrels
TBtus = trillion British thermal units
As used in this quarterly report, the phrase "quarter-to-quarter" means the
second quarter of 2021 compared to the second quarter of 2020. Likewise, the
phrase "period-to-period" means the six months ended June 30, 2021 compared to
the six months ended June 30, 2020.
We are a publicly traded Delaware limited partnership, the common units of which
are listed on the New York Stock Exchange ("NYSE") under the ticker symbol
"EPD." Our preferred units are not publicly traded. We were formed in April
1998 to own and operate certain natural gas liquids ("NGLs") related businesses
of EPCO and are a leading North American provider of midstream energy services
to producers and consumers of natural gas, NGLs, crude oil, petrochemicals and
refined products. We are owned by our limited partners (preferred and common
unitholders) from an economic perspective. Enterprise GP, which owns a
non-economic general partner interest in us, manages our Partnership. We
conduct substantially all of our business operations through EPO and its
Our fully integrated, midstream energy asset network (or "value chain") links
producers of natural gas, NGLs and crude oil from some of the largest supply
basins in the United States ("U.S."), Canada and the Gulf of Mexico with
domestic consumers and international markets. Our midstream energy operations
• the collection, treatment, treatment, transport and storage of natural gas;
• Transport, fractionation, storage and maritime terminals of LGN (including
those used to export liquefied petroleum gases, or “LPG”, and ethane);
• the collection, transport, storage and marine terminals of crude oil;
• propylene production facilities (including propane dehydrogenation (“PDH”)
facilities), butane isomerization, octane enhancement, isobutane
dehydrogenation ("iBDH") and high purity isobutylene ("HPIB") production
• transport, storage and marine of petrochemical and refined products
terminals (including those used to export polymer grade ethylene and propylene
• a shipping company that operates on we inland and
intra-coastal waterway systems.
The safe operation of our assets is a top priority. We are committed to
protecting the environment and the health and safety of the public and those
working on our behalf by conducting our business activities in a safe and
environmentally responsible manner. For additional information, see
"Environmental, Safety and Conservation" within the Regulatory Matters section
of Part I, Items 1 and 2 of the 2020 Form 10-K.
Like many publicly traded partnerships, we have no employees. All of our
management, administrative and operating functions are performed by employees of
EPCO pursuant to an administrative services agreement (the "ASA") or by other
Our financial condition, results of operations and cash flows are subject to certain risks. For more information on these risks, see “Risk Factors” included in Part I, Section 1A of Form 2020 10-K.
We provide investors access to additional information regarding the Partnership
and our consolidated businesses, including information relating to governance
procedures and principles, through our website, www.enterpriseproducts.com.
As noted previously under "Cautionary Statement Regarding Forward-Looking
Information" within this Part I, Item 2, this quarterly report on Form 10-Q,
including this update to our outlook on business conditions, contains
forward-looking statements that are based on our beliefs and those of Enterprise
GP. In addition, it reflects assumptions made by us and information currently
available to us, which includes forecast information published by third parties.
All references to U.S. Energy Information Administration ("EIA") forecasts and
expectations are derived from its July 2021 Short-Term Energy Outlook ("July
2021 STEO"), which was published on July 7, 2021. The forecasts and other
forward-looking information cited in the following discussion remain subject to
uncertainty since global mitigation efforts and medical developments related to
COVID-19 continue to evolve.
We believe that the underlying trends described in our 2020 Form 10-K pertaining
to hydrocarbon supply and demand fundamentals remain generally intact.
Hydrocarbon demand has rebounded in many regions across the globe as vaccination
programs are implemented on a wider scale and many countries have eased their
COVID-19 containment measures. With respect to hydrocarbon supplies, ongoing
production quotas within the Organization of the Petroleum Exporting Countries
("OPEC") and Russia (collectively, the "OPEC+" group), along with market-induced
discipline in U.S., Brazilian and Canadian supplies, continue to support
near-term international energy markets. The increase in global hydrocarbon
demand and restrained crude oil production has contributed to a dramatic rise in
crude oil prices since the beginning of 2021. For example, the price of West
Texas Intermediate ("WTI") at Cushing, Oklahoma (as reported by the NYMEX)
averaged $71.35 per barrel in June 2021 compared to $52.10 per barrel in January
2021. The average price for WTI at Cushing in 2020 was $39.34 per barrel.
From a supply perspective, the EIA estimates that global production of petroleum
and related liquids averaged 94.2 MMBPD in 2020, and expects an average of 96.7
MMBPD in 2021 and 101.8 MMBPD in 2022. The EIA expects U.S. drilling activity
to rise slightly over the remainder of 2021 in response to supportive price
levels, with production forecast to average 11.3 MMBPD in the fourth quarter of
2021 compared to an average of 11.2 MMBPD in the second quarter of 2021.
Overall, the EIA forecasts U.S. crude oil production to average 11.1 MMBPD in
2021 and 11.9 MMBPD in 2022. By comparison, the EIA estimates that U.S. crude
oil production averaged 10.9 MMBPD in the fourth quarter of 2020. Likewise, the
EIA expects U.S. natural gas production to increase, especially in the Permian
Basin region, and to average 92.6 Bcf/d in 2021 and 94.7 Bcf/d in 2022, compared
to an estimated 91.4 Bcf/d in 2020.
With respect to demand, the EIA estimates that global demand for petroleum and
related liquids averaged 92.3 MMBPD in 2020, and expects an average of 97.6
MMBPD in 2021 and 101.4 MMBPD in 2022. Per the EIA, the consumption of
petroleum and related liquids in the U.S. averaged 18.1 MMBPD in 2020, and is
forecast to average 19.6 MMBPD and 20.7 MMBPD in 2021 and 2022, respectively.
The current improvement in energy fundamentals (and global economic conditions
in general) remain highly dependent on the successful containment of COVID-19,
especially its more contagious emerging variants (e.g., the "Delta" variant),
through the distribution, acceptance and administration of proven vaccines and
therapeutics for the disease.
We continue to believe that our integrated, diversified and fee-based business
model will enable us to successfully traverse this extraordinary period in the
energy industry. The Partnership and its consolidated operations remain in a
strong position, with our financial strength and operational flexibility
demonstrated by $5.4 billion of consolidated liquidity at June 30, 2021,
investment grade credit ratings on EPO's long-term senior unsecured debt, a
disciplined capital spending approach, the optimization of our assets to provide
incremental services to customers and to respond to market opportunities, and a
portfolio of diverse, high quality customers.
Table of Contents
Enterprise and Magellan Partner with Intercontinental Exchange on New Houston Crude Oil Futures
In June 2021, we, Magellan Midstream Partners, L.P ("Magellan")
and Intercontinental Exchange, Inc. ("ICE") announced the establishment of a new
futures contract for the physical delivery of crude oil in the Houston, Texas
area in response to market interest for a Houston-based index with greater
scale, flow assurance and price transparency. It will utilize the capabilities
and global reach of ICE's industry-recognized, state-of-the-art trading platform
and is due to be launched by ICE by early 2022, subject to regulatory approval.
The quality specifications of the new futures contract will be consistent with
WTI originating from the Permian Basin with common delivery options at either
our ECHO terminal in Houston or Magellan's East Houston terminal. In support of
this new futures contract, we and Magellan expect to discontinue provisions for
delivery services under legacy futures contracts that are deliverable at each
terminal once the new futures contract is finalized and receives regulatory
The company will increase its use of energy from renewable resources
In March 2021, we announced the execution of a power purchase agreement with EDF
Renewables North America that will increase our use of electricity from solar
power by 100 MWac/132 MWdc. We are committed to being a responsible steward of
the environment, including using energy sustainably across our footprint. We
estimate that by 2025, approximately 25% of our power will be from renewable
Price data for selected energy products
The following table presents a selection of average index prices for natural gas and a selection of NGLs and petrochemicals for the periods indicated:
(1) Natural gas prices are based on prices from the Henry-Hub Inside FERC commercial index
as reported by Platts, which is a division of McGraw Hill Financial, Inc.
(2) NGL prices for ethane, propane, normal butane, isobutane and natural gasoline
are based on the prices of the Mont Belvieu Non-TET commercial index as reported by Oil
Price information service. (3) Polymer grade propylene prices represent average contract prices for these
product as reported by IHS Chemical, a division of IHS inc. (“IHS
Chemical “). Refinery grade propylene (” RGP “) prices represent
weighted average spot prices for this product, as reported by IHS Chemical. (4) The “Indicative Gas Processing Gross Spread” represents our generic estimate
of the gross economic benefit from the extraction of NGLs from natural gas
production based on certain price assumptions. Concretely, it is the
amount by which the assumed economic value of a composite gallon of NGL to
Mont Belvieu, Texas exceeds the value of the equivalent amount of energy in
natural gas at Henry Hub, Louisiana. Our estimate of the indicative spread
does not take into account the operating costs incurred by a natural gas processing plant
installation to extract NGLs and transport and fractionation costs
to deliver NGLs to the market. In addition, the actual treatment of the gas has spread
earned at each plant is determined by regional pricing and extraction
The weighted-average indicative market price for NGLs was $0.64 per gallon in
the second quarter of 2021 versus $0.31 per gallon in the second quarter of
2020. Likewise, the weighted-average indicative market price for NGLs was $0.63
per gallon during the six months ended June 30, 2021 compared to $0.33 per
gallon during the same period in 2020.
The following table shows a selection of average crude oil index prices for the periods indicated:
(1) WTI prices are based on the prices of commercial indices at Cushing, Oklahoma like
measured by NYMEX. (2) Midland and Houston crude oil prices are based on commercial index prices
reported by Argus. (3) The Light Louisiana Sweet (“LLS”) prices are based on the prices of commercial indices such as
reported by Platts.
Fluctuations in our consolidated revenues and cost of sales amounts are
explained in large part by changes in energy commodity prices. An increase in
our consolidated marketing revenues due to higher energy commodity sales prices
may not result in an increase in gross operating margin or cash available for
distribution, since our consolidated cost of sales amounts would also increase
due to comparable increases in the purchase prices of the underlying energy
commodities. The same type of relationship would be true in the case of lower
energy commodity sales prices and purchase costs.
We attempt to mitigate commodity price exposure through our hedging activities
and the use of fee-based arrangements. See Note 13 of the Notes to Unaudited
Condensed Consolidated Financial Statements included under Part I, Item 1 of
this quarterly report and "Quantitative and Qualitative Disclosures About Market
Risk" under Part I, Item 3 of this quarterly report for information regarding
our commodity hedging activities.