Enterprise Products Partners L.P. (EPD) intends to construct a crude oil storage facility, the Enterprise Crude Houston terminal, and associated pipelines to accommodate growing production from the Eagle Ford Shale play in South Texas. The construction mainly aims at facilitating the refiners in the Houston area. The partnership expects the total infrastructure to come online in mid-2012.
In a 150-acre tract in southeast Houston, the Enterprise Crude Houston terminal, will receive crude oil through Enterprise’s Rancho Pipeline. The new terminal will be close to two large-diameter crude oil distribution pipelines and will provide access to the major refiners in Texas City, other installations in Pasadena-Deer Park, Baytown, and along the Houston Ship Channel via the Seaway Pipeline.
This project is expected to improve midstream network in the Eagle Ford Shale by connecting another recently announced 140-mile pipeline with the Houston-area refining complex. Additionally, it will help producers to optimize the production level as well as refiners in expansion projects.
Importantly, the partnership did not rule out further expansion of the facility to meet increasing volumes from offshore and Canadian sources along with the Eagle Ford Shale.
Enterprise remains a core holding and focuses on projects that generate stable cash flow and contribute to its integrated value chain. While Enterprise increased its cash flow distribution by 5.4% in the third quarter, it also deployed cash in various fee-based development projects that will likely generate operating cash flow to support its future distribution growth.
We continue to view Enterprise as a core holding in a master limited partnership portfolio, given its string of organic growth projects, potential acquisitions, strong balance sheet and solid liquidity position. With the construction of crude oil pipelines, processing plants, fractionators, and storage facilities, Enterprise is significantly expanding its midstream platform in Eagle Ford.
Following better-than-expected third quarter results, we are maintaining our Neutral stance for the units of Enterprise Products Partners. We believe that the partnership’s premium valuation is supported by its growth profile, leaving little room for upside movement.
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