EPD is not insensitive to oil and natgas prices. Your friends in the petrochemical industry are different than my friends in the chemcial industry. It is abysmal. Petrochemicals are running at 80-85% rates and NGL prices are dropping like a rock....the NGL to natgas spread is narrowing rapidly....not good for someone depending on fractionation. On top of that, there are legitimate storage problems in the Mont Belvieu area. Folks like Enterprise are drowning in NGLs....how much inventory are they sitting on that hasn't been hedged?
As a transporter and processor of NG and NGls I would think that EPD is somewhat less sensitive to oil and NG prices than are producers like APA. The transporting business has essentially no sensitivity to oil prices. In the processing i.e. fractionation business, the key is the relationship between NGL prices and NG prices. In other words, does the spread make it worthwhile to separate the NGLs from the gas? If what I hear from my friends in the petrochemical industry is correct, it probably will be because they are getting prices up for the downstream products that are made from NGLs. A few weeks ago Goldman upgraded LYO based on better petrochemical end product pricing.
in the quaterly reports....all you have to do is read them. As for the debt load that EPD carries...its low when considering other companies in this industry. This is reflected in the latest debt rating upgrade. Paying dividends are what limitied partnerships do. just enjoy the the stock price growth as an added benefit....while it last. Oil prices are the key...everything, including NGL hinges on oil valuations..................The last two years have been rare. A wonderful time to be long in energy stocks.
I'm fine with your argument that paying a good dividend is more of a drain than paying no dividend.
The only way any of us can evaluate how wisely or unwisely EPD is managing its expenses against it's growht is to know all the numbers, which neither you nor I do.
On the other hand, I bought EPD for the current yield and am looking at a 100% bonus.
I expect more of that bonus as Bush wants us all to give our tax break to the oil companies. I think EPD will share in some of that ill-gotten gain and gimme some of it.
My original comment about the temptation to skimp on maintenance wasn't intended to single that out as somehow unique. Just that it's a bigger number for a pipeline company than, say, its office rent. And that the emphasis on paying out cash flow to increase your partnership distributions vs. paying a lower distribution and retaining a higher percentage to grow the business internally and pay for unexpected expenses (like a line blowout, if you self insure) can lead to problems down the road.
I'm trying to point out that EPD isn't using the same business model as a classic "growth" company. It's highly leveraged and that's a good thing when you're always growing. Problem is, energy is a cyclical business. As an investor you just have to know where you are in the cycle.
Not trying to force it down to cover a short; I'm neutral on this one. IMHO it's an OK buy if you're looking for current yield; not so great anymore if you're looking for a big pop in the underlying price.
I'm not confused when I declare that nobody on this message board has explained how gas line maintenance should be more heavily weighed against stock valuation than the general costs ANY company encounters should be weighed against their stock valuation.
The cry of "PIPELINE MAINTENANCE COSTS!!!" is certainly a straw dog when it is USED as a fear tactic. I object to that.
Mr. Knowitowl, You should listen to the words of wisdom of Mr. Norman. We aren't dealing with residential pipeline systems here. These are the large diameter babies we are talking about. I can say that EPD takes extreme care in maintaining their lines and have top notch operations personnel and egineering support at all levels. EPD is a class act and has proven to be a wise investment.
Mr. Knowitowl I think you are the one who is confused, though.
Back in my earlier message, I was trying to point out that a company whose business model is paying out most of its "free" cash in distributions is different than one that keeps its money for growth. EPD's choices to grow if it keeps its dividend up would be to increase throughput on existing assets or via acquisitions. If you believe gas processing will grow so much in the future that the stock will keep right on going up that's one scenario - doesn't require quite as much cash. The other is that they will need debt to keep acquiring assets and at some point they run into potential issues w/anti trust and/or debt service.
Gas processing is a cyclical business; branching out into gas gathering should help them.
Main point - there's more risk in going long on this stock now than a few months ago if you're assuming they will continue to increase distributions every year from here on out.
knowitowl - I don't think that anyone has suggested that. This discussion started when someone suggested that pipeline maintenance is necessary and expensive. It's certainly necessary, but I don't believe that it's all that expensive, hence my Big Inch example.