Enterprise Products Partners (NYSE:EPD) has roughly 90% upside potential from current trading levels, after being crushed by the COVID pandemic and oil selloff. During the selloff, EPD’s stock suffered a catastrophic (roughly) 63% drop from $28.00 to $10.27. Trading around $17.00 now, the stock is positioned well to outperform the overall market and energy sector. I have priced in roughly 18% downside risk where shares would trade around $14.00 based off Fibonacci retracement levels (more on this later). With strong technical indicators and impressive fundamentals, EPD is poised for a major rally in the next 12-24 months, pricing shares around $32 at fair value.
Background
According to the company’s annual 10-K:
“Our integrated midstream energy asset network 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 assets currently include approximately 50,000 miles of pipelines; 260 MMBbls [Million Barrels] of storage capacity for NGLs, crude oil, petrochemicals and refined products; and 14 Bcf [billion cubic feet] of natural gas storage capacity.”
Company Overview
EPD reports revenue through four distinct business segments, which include “NGL Pipelines and Services, Crude Oil Pipelines and Services, Natural Gas Pipelines and Services, and Petrochemical and Refined Products Services”. With the company’s current 50,000 miles of pipelines, 260 MMbls of storage, and 14 Bcf of natural gas storage, EPD is a leader in its industry.
NGL Pipelines and Services
According to the company’s 10-K:
“Our NGL Pipelines & Services business segment currently includes 22 natural gas processing facilities and related NGL marketing activities; approximately 19,900 miles of NGL pipelines; NGL and related product storage facilities; and 16 NGL fractionators. This segment also includes our LPG and ethane export terminals and related operations”.
NGLs refer to components of natural gas separated from the gas into liquid form (such as ethane or propane). The company has to break this down because natural gas containing high amounts of NGLs usually are not allowed to be transported via pipeline or to be used in commercial use. Its revenues are mainly derived from the difference between the cost of extracting NGLs and the costs associated with natural gas extraction.
Below is a table from the company’s most recent 10-K statement showing the breakdown of natural gas processing facilities.
Table 1:
*Obtained from the company’s annual 10-K statement.
To show this in a better way, I have created a chart that shows the percentage of where the facilities are located.
*Created by the author using data from Table 1.
As can be seen above, EPD is very exposed to Texas (this will be discussed later) which can create some issues moving forward. Out of the 22 natural gas processing facilities, there are 13 in Texas. The next two most exposed states are New Mexico and Louisiana, each with three facilities.
Crude Oil Pipelines and Services
The company has pipelines for Crude Oil in Oklahoma, New Mexico, and Texas. EPD also owns multiple crude oil terminals located in Texas and Oklahoma. With 29.8 MMBbls of storage and 5,326 miles of pipelines, EPD makes money in this segment by how much crude oil it holds in its barrels and also the fees charged for holding the oil. Below I have listed two tables showing a breakdown of each of the respected sub-segments and also included my own graph to better depict the information.
Table 2:
*Table obtained from the company’s 10-K statement.
Table 3:
*Table obtained from the company’s 10-K statement.
*Created by the author using data from Table 3.
Again, as seen above, EPD is extremely exposed to Texas. With a total of 124 above-ground tanks and 37.6 million barrels of capacity, its business in Texas is extremely larger than in Oklahoma (18 above-ground tanks with 3.2 million barrels of capacity).
Natural Gas Pipelines and Services
The company states in its 10-K:
“Our natural gas pipeline systems gather, treat and transport natural gas from producing regions including the Permian Basin, Eagle Ford Shale, Haynesville Shale, and the Piceance, San Juan and Greater Green River supply basins. In addition, certain of these pipelines receive natural gas production from Gulf of Mexico developments”.
These pipelines are then used to redeliver the natural gas to processing facilities and electric generation facilities. Below is a table of the natural gas pipelines EPD has. I have also included a clearer chart showing specific factors in the table.
Table 4:
*Table obtained from the company’s 10-K statement.
*Created by the author using data from Table 4.
The above…
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