limited master partnership

One of the largest MLPs in existence today is Houston based Enterprise Products Partners.  As measured by enterprise value, EPP is second only to MLP bellwether Kinder Morgan at $21 billion.  However, from a liquidity standpoint (the ability to trade LP units on the open market - a key concern of many investors) it bests Kinder Morgan with an average of 560K units traded daily.

Overview

Like many of its peers, EPP is focused on providing midstream energy services to natural gas, natural gas liquids (NGL) and crude oil producers and consumers.  Its primary method of doing so is its extensive network of pipelines (both offshore & onshore) which span over 35K miles in length.  However, a key differentiator is its ability to tie import / export of NGLs with domestic and international consumers.  In fact, NGL has become a very profitable business for EPP, with over half the partnership’s gross operating margin derived from NGL pipelines and services.

The Numbers

Investors like consistency, fiscal conservatism, and cash - and EPP seems to fit the bill with all 3.  The partnership has grown cash distributions to LP unitholders at an annual growth rate of 9% per year since 1999, and grew total assets at a 39% CAGR during the same period.

Jan - June 2008 operating margins grew at a double digit pace vs. 2007 with strong performance across all pipeline business segments.  Further, distributable cash flow (DCF) grew 41% in 1H ‘08 vs. 1H ‘07 to $730 MM, and the amount of retained DCF grew over 4X to $212 MM.  This gives the partnership a comfortable coverage ratio of around 1.47.

In Sum

I don’t issue buy or sell recommendations for any type of security.  However, I like EPP and will continue to watch this company as it pursues more projects and grows in the midstream energy space.