More Solid Pipeline Results

Earnings season for big pipeline companies has continued to be encouraging. Enterprise Products (EPD) reported results largely as expected and lowered 2020 growth spending by $1BN. The reductions in capex have been welcomed by investors who have long complained about the level of reinvestment by energy companies. Any reductions in EBITDA have been matched by lower outlays on new projects, which supports free cash flow.

Jim Teague, EPD’s CEO, opened the call by remembering an outbreak of polio as a young boy, “It was a highly contagious virus. It struck without warning…my mom contracted polio…we practiced our own kind of social distancing. What I don’t remember is shutting down the entire economy and 30 million people losing their jobs in one month.”

Teague offered another personal perspective, ”As a young naval officer in an attack helicopter squadron in the Mekong Delta, Vietnam, I took a great deal of pride that I was part of a special fraternity. I have that same kind of pride today.” The wartime analogy strikes a chord with many.

EPD maintained its distribution. When asked about customers claiming force majeure to get out of take-or-pay pipeline contracts, Teague responded, “We’ve looked at all our contracts, and we feel pretty comfortable that we’re not going to have any issue with force majeure as it relates to price.”

Cheniere Energy (LNG) handily beat expectations with their 1Q20 results. Of more concern to investors is the outlook for Liquified Natural Gas shipments, with reports of as many as 20 being delated or cancelled. CEO Jack Fusco addressed this in his opening remarks,”…our long term contracts do not include provisions for renegotiations.” He added, “In instances where that (cancelation) occurs, the fixed liquefaction fee is still paid to us and our marketing affiliate has the option to market the volume into the global marketplace.”

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