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EPD > SEC Filings for EPD > Form 10-Q on 8-Aug-2013All Recent SEC Filings




Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

For the three and six months ended June 30, 2013 and 2012.

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, 2012, as filed on March 1, 2013 (the "2012 Form 10-K"). Our financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States ("U.S.").

Key References Used in this Quarterly Report

Unless the context requires otherwise, references to "we," "us," "our," "Enterprise" or "Enterprise Products Partners" are intended to mean the business and operations of Enterprise Products Partners L.P. and its consolidated subsidiaries. References to "EPO" mean Enterprise Products Operating LLC, which is a wholly owned subsidiary of Enterprise, and its consolidated subsidiaries, through which Enterprise Products Partners L.P. conducts its business.
Enterprise is managed by its general partner, Enterprise Products Holdings LLC ("Enterprise GP"), which is a wholly owned subsidiary of Dan Duncan LLC, a Texas limited liability company.

The membership interests of Dan Duncan LLC are owned of record 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 Enterprise GP;
(ii) Dr. Ralph S. Cunningham, who is also a director of Enterprise GP; and (iii) Richard H. Bachmann, who is also a director of Enterprise GP. Each of the DD LLC Trustees also currently serves as one of the three managers of Dan Duncan LLC.

References to "EPCO" mean Enterprise Products Company, a Texas corporation, and its privately held affiliates. A majority of the outstanding voting capital stock of EPCO is owned of record by a voting trust, the current trustees ("EPCO Trustees") of which are: (i) Ms. Williams, who also serves as Chairman of EPCO;
(ii) Dr. Cunningham, who also serves as a Vice Chairman of EPCO; and (iii) Mr. Bachmann, who also serves as the President and Chief Executive Officer ("CEO") of EPCO. Each of the EPCO Trustees is also a director of EPCO.

As generally used in the energy industry and in this quarterly report, the acronyms below have the following meanings:

/d = per day MMBbls = million barrels BBtus = billion British thermal units MMBPD = million barrels per day

  Bcf     = billion cubic feet            MMBtus   = million British thermal units
  BPD     = barrels per day               MMcf     = million cubic feet
  MBPD    = thousand barrels per day      TBtus    = trillion British thermal units

Cautionary Statement Regarding Forward-Looking Information

This quarterly report on Form 10-Q 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," "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 are reasonable, neither we nor our general partner can give any assurances that such expectations will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions as described in more detail under "Risk Factors" within Part I, Item 1A included in our 2012 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 filing date hereof. Except as required by federal and state securities laws, we undertake no obligation

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to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.

Overview of Business

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." We were formed in April 1998 to own and operate certain natural gas liquids ("NGLs") related businesses of EPCO and are now a leading North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products and petrochemicals.

Our integrated midstream energy asset network links producers of natural gas, NGLs and crude oil from some of the largest supply basins in the U.S., Canada and Gulf of Mexico with domestic consumers and international markets. Our midstream energy operations include: natural gas gathering, treating, processing, transportation and storage; NGL transportation, fractionation, storage, and import and export terminals (including LPG); crude oil gathering, transportation, storage and terminals; offshore production platforms; petrochemical and refined products transportation and services; and a marine transportation business that operates primarily on the U.S. inland and Intracoastal Waterway systems and in the Gulf of Mexico. Our assets include approximately 50,000 miles of onshore and offshore pipelines; 200 MMBbls of storage capacity for NGLs, petrochemicals, refined products and crude oil; and 14 Bcf of natural gas storage capacity. In addition, our asset portfolio includes 24 natural gas processing plants, 21 NGL and propylene fractionators, six offshore hub platforms located in the Gulf of Mexico, a butane isomerization complex, NGL import and export terminals, and octane enhancement and high-purity isobutylene production facilities.

We conduct substantially all of our business through EPO and are owned 100% by our limited partners from an economic perspective. Enterprise GP manages our partnership and owns a non-economic general partner interest in us. 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 or by other service providers.

We have five reportable business segments: (i) NGL Pipelines & Services; (ii) Onshore Natural Gas Pipelines & Services; (iii) Onshore Crude Oil Pipelines & Services; (iv) Offshore Pipelines & Services; and (v) Petrochemical & Refined Products Services. For information regarding our business segments, see Note 11 of the Notes to Unaudited Condensed Consolidated Financial Statements included under Part I, Item 1 of this quarterly report.

Significant Recent Developments

The following information highlights significant commercial and operational developments since January 1, 2013 through the date of this filing (August 8, 2013). For information regarding recent offerings of our equity and debt securities and the expansion of our bank credit facilities, see "Liquidity and Capital Resources" within this Part I, Item 2.

Formation of Joint Venture to Own Two New NGL Fractionators at Mont Belvieu Complex

In June 2013, we formed a joint venture, Enterprise EF78 LLC, with Western Gas Partners, LP ("Western Gas"), an affiliate of Anadarko Petroleum Corporation, involving two NGL fractionators that are under construction at our complex in Mont Belvieu, Texas (i.e., NGL fractionators seven and eight). We own 75% of the joint venture's membership interests and consolidate the joint venture.
Western Gas acquired a 25% noncontrolling interest in the joint venture for an initial contribution of $90.2 million, which is reflected as a contribution from noncontrolling interests on our Unaudited Statements of Consolidated Cash Flows for the six months ended June 30, 2013. NGL fractionators seven and eight are expected to begin operations in the fourth quarter of 2013 and, as designed, have a combined fractionation capacity of approximately 170 MBPD of NGLs.

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Plans to Develop Refined Products Export Facilities on Texas Gulf Coast

In May 2013, we announced the development of two refined products export facilities, one in Beaumont, Texas and another on the Houston Ship Channel, to meet growing demand for additional refined products export capability on the U.S. Gulf Coast. Export service at our Beaumont marine terminal is expected to begin during the first quarter of 2014 and initially accommodate Panamax class vessels, followed in mid-2014 by completion of our expanded marine terminal on the Houston Ship Channel, which is being designed to handle up to Aframax class vessels. Panamax and Aframax class vessels are both medium-sized tanker ships; however, Panamax vessels are designed to be able to transit the existing lock chambers of the Panama Canal. These new export facilities will complement our existing refined products pipelines, storage and terminal facilities in southeast Texas and enable us to provide customers with improved access to international markets.

Plans to Expand Crude Oil Storage and Distribution Infrastructure Serving Southeast Texas

Historically, Southeast Texas refineries have been primarily supplied by waterborne imports of crude oil. With the success of North America producers, crude oil from the Eagle Ford, Permian, Midcontinent, Bakken and Canada are flowing into Southeast Texas and displacing waterborne crude oil imports. As production from these regions continues to grow, we expect a significant increase in crude oil deliveries to the U.S. Gulf Coast market, which currently lacks sufficient storage capacity and has an inadequate distribution system for handling these varying grades of domestic crude oil.

In response, we announced plans in May 2013 to significantly expand our crude oil storage and distribution infrastructure serving the Southeast Texas refinery market. This planned expansion involves the construction of approximately 4.0 MMBbls of combined new crude oil storage capacity in the Houston, Texas area, including additional storage capacity at our Enterprise Crude Houston ("ECHO") storage facility. Also, we plan to construct 55 miles of associated pipelines to directly connect ECHO with several major refineries in the Southeast Texas market. The expansion would be completed in phases with final completion expected in the fourth quarter of 2014.

Upon completion, we will be able to provide Southeast Texas refiners with an integrated system featuring supply diversification, significant storage capabilities and a high capacity distribution system that will be connected via pipeline to refineries having an aggregate capacity of approximately 3.6 MMBPD.
In addition, ECHO, which is expected to have over 6.0 MMBbls of crude oil storage capacity following the expansion, will have access to our marine terminal at Morgan's Point on the Houston Ship Channel.

Plans to Build Gulf Coast Ethane Pipeline

In March 2013, we announced the receipt of transportation commitments to support development of a new 270-mile pipeline system, the Aegis Pipeline, that will deliver ethane to petrochemical plants in the U.S. Gulf Coast region. The Aegis Pipeline will originate at our Mont Belvieu, Texas storage complex and have the capacity to transport purity ethane volumes to various petrochemical customers in Texas and Louisiana. The Aegis Pipeline is expected to begin commercial operations in 2014.

Operations Begin at Expanded LPG Export Facility

In March 2013, we completed an expansion project at our Houston Ship Channel LPG export terminal thereby increasing our capability to load propane, butane and isobutane (collectively, "LPG") cargoes. This expansion project increased the terminal's fully refrigerated export loading capacity for low-ethane propane from almost 4 MMBbls per month to approximately 7.5 MMBbls per month.

Oiltanking Partners, L.P. ("Oiltanking") leases to us the site upon which our LPG export terminal facility is located. In March 2013, we executed an amended terminal service agreement with Oiltanking that provides us with additional operating flexibility, including an increase in the number of docks available to load LPG cargoes. The amended terminal service agreement extends to 2026.
Access to these additional docks could support further expansions of the export facility. We are currently evaluating an additional expansion project that could increase our propane export capacity to approximately 10 MMBbls per month and begin service as soon as the beginning of 2015.

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Results of Operations

Summarized Consolidated Income Statement Data

The following table summarizes the key components of our results of operations
for the periods indicated (dollars in millions):

                                             For the Three Months           For the Six Months
                                                Ended June 30,                Ended June 30,
                                              2013           2012           2013           2012
Revenues                                   $  11,149.3     $ 9,789.8     $ 22,532.4     $ 21,042.3
Costs and expenses:
Operating costs and expenses:
Cost of sales                                  9,458.3       8,195.2       19,150.8       17,861.0
Other operating costs and expenses               586.4         572.9        1,090.4        1,116.8
Depreciation, amortization and accretion         289.7         261.3          566.5          515.9
Losses (gains) attributable to asset
sales and
  insurance recoveries                             5.7         (29.0 )        (58.2 )        (31.5 )
Non-cash asset impairment charges                 27.1           9.1           38.1           14.5
Total operating costs and expenses            10,367.2       9,009.5       20,787.6       19,476.7
General and administrative costs                  45.5          42.5           95.0           88.8
Total costs and expenses                      10,412.7       9,052.0       20,882.6       19,565.5
Equity in income of unconsolidated
affiliates                                        37.6          11.3           82.1           21.2
Operating income                                 774.2         749.1        1,731.9        1,498.0
Interest expense                                (200.2 )      (186.6 )       (396.1 )       (373.1 )
Other, net                                        (0.3 )        13.2           (0.4 )         71.9
Benefit from (provision for) income
taxes                                            (20.4 )        (8.5 )        (26.8 )         25.9
Net income                                       553.3         567.2        1,308.6        1,222.7
Net income attributable to
noncontrolling interests                          (0.8 )        (0.9 )         (2.6 )         (5.1 )
Net income attributable to limited
partners                                   $     552.5     $   566.3     $  1,306.0     $  1,217.6

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