Enterprise Products Partners LP (EPD) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. I would like to introduce to your speaker today, Mr. Randy Burkhalter, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Buena. Good morning, and welcome, everyone, to the Enterprise Products Partners conference call to discuss third quarter 2020 earnings. Our speakers today will be Co-Chief Executive Officers of Enterprise's General Partner, Jim Teague and Randy Fowler. Other members of our senior management team are also in attendance for the call today. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, based on the beliefs of the company as well as assumptions made by and information currently available to Enterprise's management team.

Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call.

And with that, I'll turn the call over to Jim.

Thank you, Randy. For the third quarter, we reported adjusted EBITDA of $2.1 billion compared to $2 billion for the same quarter last year. Our DCF totaled $1.6 billion and provided a solid 1.7x coverage. We retained around $669 million in the quarter, now totaling $1.8 billion for the first 9 months.

Our businesses continue to perform well, even as the U.S. and the world are still dealing with the COVID pandemic, the oil price crash and the ensuing oil inventory overhang. In addition to our integrated business model, our profits continue to be protected by a strong base of firm customer obligations, coupled with our activities around our marketing and storage systems.

The petrochemical industry is reporting strong demand for our products, especially ethylene, driven in part by individual serving type products as the world deals with the pandemic. Propylene is also strong -- has strong demand to manufacture badly needed PPE.

Bob Patel, the CEO of Lyondell, probably said it best on their second quarter earnings call when he said the pandemic has generated a renewed appreciation for the value of our chemical and polymer products for society. Total capital investments were $705 million in the third quarter and $2.7 billion for the first 9 months of the year.

During the third quarter, our commercial team responded to customer requests and changing industry conditions to amend agreements that enabled us to increase volume commitments over the long-term by utilizing existing pipeline capacity, and we were able to cancel the Midland-to-ECHO 4 crude oil pipeline.

In total, we've reduced our planned growth CapEx for 2020 and 2021 by around $1.5 billion. We've also focused on cost control. For the first 9 months of this year, Enterprise's operating costs were $260 million below budget and our sustaining capital expenditures for the year are expected to be $100 million lower than our original budget.

We're turning over every rock in order to manage costs, but we're doing so without sacrificing safety or reliability.

And discussing our performance and capital reductions, I think it also goes without saying that our people matter. We are extremely proud of the way our folks have responded in face of -- in the face of the pandemic and all the other chaos we have had this year.

Early on in the pandemic, we went to a skeleton staff in our headquarters consisting of management, our marketing desk and a few of our operations folks, with everyone else working from home. We made adjustments to be able to open back up and protect our employees, including things like social distancing guidelines in common areas and installing plexiglass around the building. Biggest change we made was requiring face coverings at all times. We also had a steady stream of employee communications, including several that emphasize that none of these measures work unless each of us also take personal responsibility in the decisions we make when we are away from work. And I have to say our employees responded. Since the second half of June, I think that's right, Randy. We have been pretty much fully staffed in our offices. And our case count has been minimal, thanks to the safety measures put in place and our people accepting personal responsibility. We don't believe that our performance would come close to matching today's announcement without the kind of collaboration that comes from actually being together, especially during times of chaos, which create their own opportunities.

I'm hard-pressed to find a law firm or bank back in the office. Among downtown companies, someone recently told me, "we were somewhat of an anomaly." I think that's synonymous with competitive advantage. Then came the storms. Luckily, for most of you, the 2020 active hurricane system was nightly news. But for us, there were 5 major storms on the Gulf Coast. 3 were hurricanes, one a Category 4, and now we've got another one on the way. All of these impacted our people, our operations and the operations of many of our customers.

The loss of power in 2020 was a major event for people and businesses, especially refiners and petrochemicals along the upper Gulf Coast. So why are we talking about special charges, or big earnings hits related to what has been a historical Gulf hurricane season. Well, again, it's because of our people. Some power outages in Louisiana lasted well over a month, and we are appreciative to our engineering and operations personnel who planned for and quickly responded to these events. Time and again, we have people who, regardless of being impacted in their personal lives, are still going to the extra mile to keep the assets they look after up and running.

I'll spend a few minutes discussing our views of the global energy environment. Near term, the global economy is reopening from a self-imposed sudden stop due to COVID-19. The pace of the recovery varies, but with the exception of air travel, much of Asia has returned to near normal, while U.S. and European energy demand still lags a little. Air traffic, particularly international travel, continues to lag worldwide and several industries, refineries, airlines, hotels, restaurants need for business to get back to normal in order to really get economies moving again. Apparently, the development of vaccines is progressing rapidly. Meanwhile, treatment for the virus continues to take a giant leap.

Even though the pace of the pandemic and the recovery is somewhat uncertain, the economic recovery thus far has led to a remarkable rebound in the demand for energy and energy products from the lows of the second quarter. We think it's pretty clear we're not going to shut the world down again and that not one but several vaccines will soon be available.

We've also been very outspoken that we believe a price signal for crude oil is coming. Given the combination of recovering demand worldwide in the face of record retrenchment in drilling and completion activities by U.S. producers with steep decline curves and the lack of oil and gas investment worldwide, we believe a price signal for higher crude oil prices could occur as early as the second half of next year. While forward curves remain muted, we're really not alone in looking for a rebound.

Finally, I'd like to cover our initiatives in sustainability and lower carbon energy. Jackie Richert and Libby Strait with the help of -- from a lot of Enterprise folks are responsible for our sustainability report that we published in July. And I think that we put on our website today, Jackie?

Also, we recently posted an additional -- I got ahead of myself. We put on our website today an investor deck dedicated to our thoughts and actions on this topic. It's probably worth your time to take a look at it. I struggle with the term that I hear a lot, energy transition. In my mind, energy evolution is more appropriate and that we are gradually moving to a world where renewables will complement but not replace oil and gas. We also understand that access to affordable, reliable energy available at scale right now is what is going to continue to advance a higher quality of life worldwide. And energy evolution is underway, and light hydrocarbons from the U.S. are already playing a key role in this evolution.

With the world still adding 1 billion people every 12 years, that's on top of the population today of close to 8 billion and populations in developing countries wanting access to more convenient sources of energy, we believe demand for reliable U.S. energy, petrochemicals and related products will continue to grow. Without the U.S. shale light oil, NGLs, natural gas and our energy markets, the world is left relying on countries like Russia and Saudi Arabia. And they would again control the price of oil, leading to a lesser quality of life for people in undeveloped -- underdeveloped countries. It's clear from what's been going on at our docks that even in the middle of the pandemic, the world wants U.S. oil and gas. In addition to being what we believe is one of the global leaders in providing the world with new lighter liquid hydrocarbons, our businesses are making a substantial environmental contribution. For us, these aren't calculations in a model that make hypothetical future projections. And I think this comes out of the slide deck, some of these points, Jackie? We believe U.S. LPG exports could eliminate up to 20 million metric tons of CO2 emissions when compared to using coal, wood and animal waste for heating and cooking.

We've made a strong commitment to reducing the greenhouse gas emissions intensity of our operations with a 19% improvement in CO2 emissions per barrel of oil equivalent since 2011. We have over 16,000 micro solar installations along our pipelines and approximately 17% of our purchased power comes from renewables. Last but not least, we're easily the largest midstream player in generating, consuming and marketing hydrogen from processes in our petrochemical plants, specifically iBDH and PDH. We estimate that with the completion of our second PDH facility in 2023, we will produce about 150 million cubic feet of hydrogen, something over 100 million of pure hydrogen. You -- we use all of the hydrogen we can in our plants, and we sell the rest into the industrial gas market.

We're really proud of this quarter. Last quarter, one of the sell-side analysts wrote that Enterprise had a great quarter, and no one cared. Well, we know our investors care. And even if the market doesn't care, I can assure you, at Enterprise, we care. The Enterprise culture, we live by a motto that Dan's grandmother taught him. And it's a simple motto, but it's what drives us. Do the best you can every day. And that's what we're doing.

And with that, I'll turn it over to Randy.

Okay. Thank you, Jim, and good morning. I'd like to start with the income statement. On net income attributable to common unitholders for the third quarter of 2020 was $1.1 billion or $0.48 per unit on a fully diluted basis and this compares to $0.46 per unit for the third quarter of 2019. When we adjust earnings for noncash asset impairment charges, earnings per unit on a fully diluted basis was $0.51 for the third quarter of 2020 versus $0.48 for the third quarter of last year.

Moving on to cash flows. Cash flow from operations were $1.1 billion for the third quarter of 2020 compared to $1.6 billion for the third quarter of 2019. Substantially, all of this decrease in cash flow from operations was due to cash used for working capital purposes. Based on current expectations, we believe our working capital usage peaked during the third quarter.

Free cash flow, which we defined as cash flow from operations minus investing activities plus contributions from joint venture partners, was $430 million for the quarter, which, again, was impacted by cash used for working capital purposes. Free cash flow was $2.1 billion for the 12 months ended September 30, 2020.

We define payout ratio as the sum of cash distributions and buybacks as a percent of cash flow from operations. Our payout ratio was 68% with respect to the trailing 12 months, if we adjust -- if we normalize working capital uses, it was closer to 61%. We declared our distribution of $0.445 with respect to the third quarter, which will be paid November 12. The distribution is the same as the prior 3 quarters. As we stated on the last 2 quarterly calls, given the continued state of the macroeconomic backdrop, our Board elected to maintain the current distribution rate, and will continue to evaluate any increase to the distribution on a quarterly basis.

During the third quarter of 2020, we bought back an additional $34 million or 2 million common units under our buyback program. Year-to-date, we have bought back $174 million or 8.3 million common units, which equates to approximately 4% of year-to-date cash flow from operations. We exchanged another 1.1 million common units into preferred units in September 2020.

Additionally, EPD's distribution reinvestment plan and employee unit purchase plan purchased a combined $33 million or approximately 1.8 million EPD common units in the open market during the third quarter. Year-to-date, these programs have purchased $104 million or approximately 5.1 million EPD common units on the open market.

Now moving to capital investments. We have recently placed approximately $1.4 billion of assets into service since the last call and have another $4.1 billion of projects still under construction. As Jim mentioned, our capital investments were $705 million during the third quarter, including $83 million for sustaining capital. For the 9 months ended September 30, capital investments were $2.7 billion, which included $226 million of sustaining capital. We anticipate approximately $3.2 million in capital investments for 2020, which would include $300 million for sustaining capital expenditures.

For 2021 and 2022, we currently anticipate growth capital investments to be approximately $1.6 billion and $800 million, respectively. Our capital expenditure forecast excludes our proposed SPOT offshore crude oil terminal that is subject to government approvals, which we do not expect to receive this year.

And turning to capitalization. Our total debt principal outstanding was approximately $30 billion as of September 30, 2020. Assuming the first call date of our hybrids, the average life of our debt portfolio is 16.5 years. Assuming the final maturity date of the hybrids extends the life of the portfolio out to 20.6 years. Our effective average cost of debt is 4.4%.

Adjusted EBITDA for the trailing 12 months ended September 30, 2020, was $8 billion, and our consolidated leverage ratio was 3.5x after adjusting debt for the partial equity credit of the hybrid debt securities by the debt rating agencies and further reduced for unrestricted cash.

Our consolidated liquidity was approximately $6 billion at September 30, including availability under our existing credit facilities and approximately $1 billion of unrestricted cash on hand. As mentioned, we likely reached peak use of working capital for the year in the third quarter, but anticipate somewhat elevated uses for the next quarter.

On allocation of capital, beginning with the fourth quarter, we currently expect, as I mentioned, some of the cash flow from operations that has been used for working capital purposes will begin to reverse and will become a source of cash flow from operations. Based on current expectations, this should continue to reverse in 2021. How much it reverses or frankly, how much we may redeploy will ultimately depend on the opportunities we see in 2021. In addition, the magnitude of EPD's discretionary cash flow for '21 and '22 will depend on our earnings and the continuing recovery of the global economy and energy demand. It will all also depend on the permitting of SPOT.

These factors and where we are relative to our debt to adjusted EBITDA leverage target will ultimately drive our Board's decision with regard to the mix of how we would return discretionary free cash flow to our investors, through buybacks, distributions and debt retirements.

With that, Randy, I think we can open it up for questions.

Okay. Thank you, Randy. Buena, we're ready to take questions from our listeners.

(Operator Instructions) Your first question is from Jeremy Tonet.

I just wanted to start off with the -- on the last point that you touched on there. With the reduction of CapEx next year, we see some real notable positive free cash flow generation. I'm just wondering how do you think about deploying that as far as setting kind of formal ties to free cash flow, if that's something that you might look to do? Is it fair to think that acquisitions are less likely? Did you look at Dow selling those assets to Vopak? I just wanted to touch base on that side.

Should we think about the positive FCF more going towards buybacks versus other uses at this point? Just trying to dig in a little bit more.

Okay. Jeremy, I'll handle the first part of that question on capital allocation, and then Jim will speak to the M&A aspects of it. I think, one, coming in and going to a formulaic approach seems to be pretty restrictive. And just because there are so many variables that we consider and that could influence how we would come in and allocate capital. So I think, to a degree, we really need to -- it's probably not appropriate to try to speculate right now on what we might see on all these variables next year. I think we would rather come in and take a look at what the fact set looks like in '21 as we continue to see economic recovery and then at that time, see what makes the most sense as far as how we allocate capital at the margin. Jim?

You give me the good part. Yes, we look at a lot of opportunities that come in -- that come through the front door, damn near every week. We haven't seen any that makes sense for us, and we did not look at the assets that Dow sold.

Got it. And then I just want to touch on ethane supply demand there, if possible. How much ethane rejection do you currently see? And how much potential ethane is recoverable at these production levels? And how do you see demand trending over time here, given kind of all the cracker additions this year as well as kind of downtime due to the hurricanes and some of those returning?

What do you think, Randy and Justin or Brent, do you want to take the lead on that?

I'll start. This is Tony. The ethane rejection has been all over the map, call it, year-to-date. Variables or things that have been pushing and pulling it are storms, price of natural gas, price of ethane. So it's been highly volatile. But let's call it, 500,000 to 1 million barrels, just depending on when you look at it.

And on the day, I'm sorry, but I can't respond to your number. Again, it just depends on what's happening in gas prices in any area of the country. Relative to trends, maybe Brent or Justin would want to talk about how you see ethane market balances.

Yes. I mean, assuming we get back to some normal ethane demand outlook going into 2021, I mean, I think with what our supply picture looks like, you're going to get to a point where as we get more balanced on ethane, ethane has to be incentivized to be recovered at further away places. And so I think, generally, that's how you start to paint a more constructive view of ethane. But as Tony alluded to, outlier events like hurricanes that take a lot of demand off-line can throw a wrench in that base case.

This is Brent. There's probably going to be questions about the supply and what happens in '21, and there's probably some downsides to that, but one of the positives is certainly ethane for 2021.

Your next question is from Shneur Gershuni of UBS.

Maybe we could start off on the cost control items that you talked about in your press release and highlighted in your prepared remarks. I was just wondering if you can talk us through how sustainable these cost reductions are?

And then secondly, are you just scratching the surface on these cost reductions and optimization opportunities? Is there a trend where we can see more and more of this over the coming quarters? Just trying to understand and see if we can -- a, how sustainable it is? And is there potential, let's say, to remove another $200 million from the cost structure?

Yes. This is Graham. In terms of the sustainability, there's a good portion of them that are sustainable. Some of them are -- I don't have the percentages right off the top of my head, but it's probably a mix of sustainable reductions as well as some that are just some short-term deferrals into next year. But when we look at the trends over time, and our operating costs, operating -- as we've continued to bring on new assets, our overall cost structure has continued to improve year-on-year, point is as you look back at 3 or 4 years ago and our cost structure today is where it was then, even -- the assets that we brought on, we've continued to maintain cost in line with years, 3 or 4 years ago.

So I think we -- I think Jim hit on it, we continue to turn over every rock and work to get better every day in managing our cost and improving our reliability. We've got a lot of good engineering talent. Some of that's being redeployed from capital projects to focus on cost reduction as we've responded to growth. And I think we're going to continue to work that. So I think probably 50% to 60% of those are probably sustainable costs.

Okay. Great. I appreciate that. And then -- and maybe as a follow-up and just sort of to continue on Jeremy's question on return of capital opportunities. Randy, I recognize the reluctance to set a formal target out there and so forth, but you kind of have a 2% of CFFO target out there. You have the CapEx stepping down next year. Any thoughts around maybe taking that to 5% or 10% as a target?

And then secondly, when I sort of think about the $3.9 billion annual distribution payment, if you lower your unit count by, say, 10% through buybacks, the claim on cash flows would fall by 10% or $400 million. And so I guess kind of the second part of my question is, given that your leverage is at a very comfortable level right now, would you consider temporarily ticking up your leverage, let's say, by a quarter turn to permanently reduce your distribution cash outflow? And I can imagine that, that would be credit enhancing over the long run. Just kind of curious on your thoughts, both inside the box and outside the box in terms of ways to reduce the unit count outstanding.

Well, Shneur, I congratulate you, that follow-up question, you turned in about 5 or 6. Let me see if I can address some of that. You're right, at the beginning of the year, frankly, pre-pandemic, we came in and said we would use 2% of our cash flow from operations to come in on buybacks. And we've surpassed that year-to-date, we're at 4%. I think, again, coming into 2021, we do have a substantially lower growth CapEx budget going into next year.

And frankly, I really don't see -- there may be a couple of projects out there, but we've really raised the return rate on our projects. So really, for the most part, maybe don't see that growing that much. So I think it will put us in a position where we'll have more discretionary cash flow next year. But again, trying to come in now and pre-commit on how we might come in and spend that, I think there are too many unknowns. Coming into this year, we actually had some investors that were promoting the idea of taking leverage up $2 billion to do a buyback program. And we did not want to come in. Again, that would take us above our 3.5x area debt-to-EBITDA leverage target. And thank goodness, we didn't follow that advice and -- because we had the pandemic come. And with the volatility that, that caused, we were able to come in and maintain our financial flexibility, which is important to us.

So again, I think as we get out into next year, we see where our opportunities are. We see how the business is performing, how the world is coming in and handling the -- hopefully, what might be the second half of this pandemic on COVID. We don't see the world doing another shutdown, like it did last time. I don't think there's popular support of shutdowns in any country. So we think the economy may be more resilient, but we really just need to get into next year and see what the fact set is, again, next year, and then we'll make a decision then.

And frankly, it may -- I think we're pretty flexible and pretty nimble in our decision-making. So that -- we could come in and make that decision quarter-to-quarter.

Your next question comes from the line of Christine Cho of Barclays.

So maybe I can start with the cancellation of Midland-to-ECHO 4. Even though you've taken that off, there's still overcapacity in the region. Do you think this sector will just continue to struggle until we get to a point in time when production approaches the capacity levels in that region? Or is there a need for the different operators to come together to rationalize capacity in the near term, whether it's idling a pipe and taking the volumes over to another pipe through a UJI or something like that? Or are there things that preclude that from really making sense?

Do you want to take a shot, Brent?

Yes. This is Brent. So I think a lot of those conversations are probably happening more often than they have in the past in terms of what's the right thing for the industry. I feel like as Enterprise, we're in a good position just in terms of how we've contracted and the length of those contracts. There was probably concessions on both sides for the M2E4 piece, but I think that was a win-win solution for both parties involved there. But it's hard to argue that there's not excess capacity coming out of the Permian for crude oil.

So the take-or-pay contracts are the ones that are going to move when it starts going above those type of volumes. It's tough to move a whole lot of spot volumes unless you're extremely, extremely competitive versus other markets. So I think everybody is trying to be creative. And I can tell you as Enterprise, we probably spend more time trying to figure out how to optimize and be strategic than we have in the past. As much as I thought we were trying to do that, I just think as an industry, there's an issue. And there's contracts out there and other folks are moving just kind of spot volumes, and that's a tough business right now.

Brent, are you fully contracted on your pipeline capacity? If not, how close?

Yes. I mean, if you look at -- in terms of what we look at as fully contracted, there's always excess capacity that's pretty expensive capacity. And every pipeline has a curve where the costs start going up. But in terms of what we have that we can efficiently move, we're fully contracted and our contracts don't start rolling off until 2027. So I kind of like our position. In terms of where the pipeline goes, the markets it has access to, the docs has access to, all that helps differentiate midstream crude service providers.

Okay. So it sounds like even if someone wanted to come to you with their volume, you don't even have the capacity to share?

I don't think we ever tell people no. We'll figure out a way to do something.

Okay. Fair enough. And then there's been a wave of M&A at the upstream level with a lot of focus on Permian. Do you guys have any initial thoughts you can share with us on the impact on midstream? And specifically, if there is any opportunity to bring more incremental volumes onto your system? Or has everything pretty much already been dedicated.

I think -- this is Jim. I think consolidation in the upstream is probably over the long haul, very good for the industry, and frankly, good for Enterprise. We like dealing with major players. And this just gives -- this -- I think this fits our wheelhouse. I think it's necessary, and I think it's not over.

Jim, you were sure to say over the long term, does that mean you think it's -- there's going to be some near-term headwinds?

I think there could be some headwinds for those who are not fully contracted.

Our next question is from Yves Siegel of Siegel Asset Management.

Quick 2 observations. One is, really complement you on the ESG initiative. Jackie and team did a great job preparing the slide deck. So it's the right thing to do, and investors really want to see that initiative. So congratulations there.

The second quick observation is, I think the winners in midstream will be the best allocators of capital, and you've distinguished yourself in that regard.

So the question is, which came up before, as you think of deploying capital, and you think of M&A and you think of stock buybacks, yes, how do you compare the two, especially from a risk profile? Because clearly, a large M&A deal implies risk, buying back your stock doesn't. And then how do you think of discrete assets versus M&A? And to Jim's point of evolution in the industry and the consolidation in the upstream, when does it happen in the midstream?

Why don't you take a shot first?

Yes, I'm going to take the easy part of that one, and then I'll give it back to Jim. Appreciate the comment. Some of it, it's somewhat -- we have been -- Enterprise has been public since 1998. And we've been very disciplined and deliberate in the way we've come in and spent our capital. And some of it was with management owning 32%, 33% of the limited partner units outstanding. We eat our own cooking. So it's not about a promote on limited partners. We're all in this thing together. So I think we are careful in where we spend capital. And it's in projects or acquisitions that we are -- that we believe in for the long term, not the short term, but the long term. As far as whole company M&A or discrete M&A, I'll turn that over to Jim.

Yes. Like I said earlier, Yves, I don't see anything that makes a hell of a lot of sense right now. I do think if you look at where we have trended in terms of the CapEx that we do spend, to Randy's point, we've really been disciplined that it's got to fit a value chain. So it's not -- you're not going to see us just go out and build something and -- it's got to add to what we already have.

And if you look at our CapEx for next year, I think, Randy, over 50% is in the petrochemical sector. So I mean you get a pretty good idea of what we're doing. I think we have a deal in principle that sells out, I think PDH 2, Chris, is that right? No pressure, buddy. The other thing, I think we are so well positioned from an export perspective, it's not funny, we -- our LPG exports have not come off at all in the middle of this pandemic. So I think when we see how we are going to do projects, it's got to fit what we already have, and it's been like that since 1998.

And then, Yves, the last part of that, I'll come in. When you come in and look at the unit price and whether you want to come in and look at 10% of distribution yield or if you want to come in and look at, what, 15%, 16% of cash flow yield. That is a -- it is a very compelling return that we see on buybacks. And we stated earlier this year on a couple of these calls that, again, with the capital expenditures we have this year, we would be moderate in coming in and doing unit buybacks. And we have done that--, but we've doubled what we said we were going to do. And then as we come into next year, again, we've come in and when it comes in and looks on the M&A side, whether it's whole company or discrete assets, we've not seen anything compelling out there.

So again, as we continue to see the unit price at attractive levels, that will be a good area to go with the allocation of capital. The one thing you think about is we're a midstream company, and when you come in and you make investments that we think are durable over the long term, you're growing your EBITDA. You're growing your asset footprint. You're growing the value of the company to your customers and to your owners, where the -- where coming in and just looking at a buyback, you are reducing the size of the company. And -- are not growing it, I should say. So I mean, we'll look at both of those. And like I said, where the unit price is currently trading based on the distribution yield, very attractive right now.

Yes. So I appreciate all that. But the quick follow-up is, would you agree that consolidation in the midstream space has to happen, especially following the consolidation in the upstream? And from a strategic perspective, are you fine with letting competitors consolidate the industry?

Yes. This is Jim. When we look at -- I mean we've got a pretty big footprint, Yves. So when we look at whole company M&A, and in many respects, what we would want to buy, we'd have to sell damn near everything we bought because the FTC wouldn't allow it. So we're going to be limited -- I think, Randy, you can kick in. We're going to be limited in our ability to consolidate, given the footprint we have and the antitrust issues that we would end up having. And trust me, we've looked at a lot of companies, and there are companies out there that I personally would love to have, but there's no way we can do it because we'd sell damn near everything we bought. Is that fair, Randy?

Yes.

Okay. And Jim, I'd like to discuss that offline. I'd love to know what companies you would love to buy.

I bet you already know, Yves.

And Yves, honestly, some of the M&A gets back to where the unit price is and the cash flow yield of our units. The way we view our equity currency as far as from an M&A standpoint, it's really expensive currency right now from an M&A standpoint. So I think that's another element that enters into the thought process.

Your next question is from Jean Salisbury of Bernstein.

Just one more on Permian crude. We thought it was a great decision to cancel M2E4 and extend existing contracts. Can you provide any more disclosure around how much you added to the average duration of contracts out of the Permian from doing that?

This is Jim. Think in the neighborhood, Brent, of 5 years?

Correct.

Okay, cool. And just as a quick follow-up, can you remind us of how much EBITDA exposure you have to the Eagle Ford? And I think there is a fair amount of MVCs that underlie the Eagle Ford exposure. But if you could just refresh me on that.

You know that? Or Brad or Jay, somebody? Or you can throw it to Natalie.

Do you want that much detail? There's contracts that roll off, and there's some that rolled off this year, there's some that will roll off next year and then I'd say the bigger contracts roll off in '22.

But we've done some work in restructuring some of those deals to extend the time and make those producers more competitive. So I mean, in every case, you talked about M2E4. There's not a system that we have that we're not trying to shore up for the long term.

And in terms of EBITDA exposure, is 5% to 10% of your EBITDA a decent estimate?

Yes. No. I -- this is Randy. I don't have the calculated number in front of me, but just in thinking about it, I think we're in low single digits.

Your next question is from Tristan Richardson of Truist Securities.

Appreciate all the overview of what you're seeing across the spectrum in this recovery. And then also for the multiyear look on capital. Just a question there. Should we think of the 2022 expectation largely as the remainder of project budget for PDH 2? And then also, to the extent the recovery accelerates and/or a crude price response drives any rebound in production, could we expect a movement in capital upward as a result?

Yes. I believe that the 2022, the significant part of that is the runoff on PDH 2. There may be a couple of other projects that would be completed in that year. I mean, also that's complete in 2022. As far as if we come back in and see a production rebound, I think we've still got some pretty good operating leverage in our assets currently. So we'll have to see what kind of -- what the rebound looks like, but I think we have some flexibility in our existing assets.

Helpful, Randy. And then the follow-up was really around the supply side. Could you talk a little bit about what the earnings power of Enterprise is to the extent we stay sort of in a range bound crude environment, particularly as all the market dislocations this year really offered a lot of outside spread opportunities.

All I could do is just tell you, I come back in. 2019 was a record year for us, and we reported about $8.3 billion worth of gross operating margin, which is pretty close to EBITDA. And if you come in and look at LTM, the last 12 months through the third quarter, it's 9 months of this year and a month of last year, we're still around. I'd say we're -- the variance from that $8.3 billion is probably maybe less than 5%. So it's been pretty durable in here.

Your next question is from Pearce Hammond of Simmons Energy.

I'm just curious, what do you see as the major puts and takes driving EBITDA next year for Enterprise? And can you provide any guardrails around the 2021 outlook?

You start and I'll finish.

Okay. One, we -- it's our practice not to give guidance, but I think the -- at the high level, I think what we're going to continue to -- what we'll see is hopefully a continuation of what we've seen really coming back since June is a recovery in energy demand globally. Jim mentioned, our LPG export demand has remained resilient even through the second quarter. And we're seeing a rebound in refined products demand off the troughs of where we were, maybe back within 10% of where we were on that demand.

Petrochemical demand has remained resilient. We think it will continue to rebound now that we're seeing it and it's transitioning. A little bit of what you saw during the summer months was PPE needs were coming in and filling the void to the extent of some of the more durable plastics that were going into manufacturing processes. But now that you see more manufacturing facilities crank up, whether it's for Teslas or aircraft or whatever it is, you're seeing more demand pull for those durable plastics that come from that propylene chain. Actually, one of those fact sets that we heard the other day is that you're seeing more demand for tires, all that tire demand is synthetic rubber. So that gets into more of your butadiene and butane value chain. So you're seeing demand pull there. So we would think demand recovery should continue. And then I think we're -- given where completion crews are, we could come in and see -- depending on the basin, you could come in and see lower production numbers from certain basins. Some are going to be more impacted than other basins. We're glad we're in the Permian because we think it will be resilient, but it will have its headwinds on production as well.

And then some of it, as far as how we might see the supply side rebound, is going to come in and it's going to be a function of where is that global energy demand? How does that recover? What are we going to see on the production front? And the timing of this price signal.

Yes. Put it simply, price creates demand. We think price will create demand as we come out of this pandemic and price creates supply. So it's why we said in our script, we see -- for all of the reasons that Randy said, we see a price signal coming. That doesn't mean the volume follows it immediately, but it ultimately will.

And I think that's why a number of companies whose practice it is to give guidance, haven't given guidance just because of the uncertainty of the timing on some of the recovery. And so it's hard to be real specific on your question because, again, there are so many variables.

Your next question is from Ujjwal Pradhan of Bank of America.

Firstly, Jim, I appreciate your comments around potential signals for higher oil prices next year, which I think are very constructive. And as you also alluded for oil prices to remain muted. And I think the forward WTI prices still remain below $45 level through 2025. So from EPD's perspective, what oil prices -- price levels are you assuming in this time frame in evaluating your future plans?

And maybe perhaps if you could share, from your perspective, what price level is needed for meaningful volume rebound?

I think the question is what price levels do producers need. I think they're going to be -- I think this consolidation we see is also going to lead to more discipline. And the more disciplined that these producers are, I think the more constructive price will be. If you're asking me for a number, you know you're not going to get it.

Got it. Got it. Appreciate that. And secondly, with regards to your comments around energy transition opportunities. I appreciate the details around renewables involvement as well as the hydrogen topic. In this regard, have you explored doing more as part of your future investments in renewables?

I think, have we looked at it? Yes. Do we see an immediate opportunity? No. And I think first and foremost, any of these things -- first, they've got to be economic. And I think this one is going to take a while to develop, and we'll see where it goes.

Buena, this is Randy. We have time for one more question that we can take from our listeners.

Your next question is from Gabe Moreen of Mizuho.

Just a question on some of the JV negotiations, I think you've talked to in prior quarters. Are any of those discussions still live and ongoing? Just kind of looking for an update.

I think they're not nearly as strong as we thought they would be, primarily because people are retrenching. And -- but the other side of it is some of these projects that we were looking at, we've been able to do contracts that I think give us a better return than doing a joint venture. So right now, I think we have discussions with one company going on. I'm not sure where it's going to go. They're retrenching.

Got it. And then a question, I guess, in terms of sort of the spread income for this year. Randy, I'm just curious about the $600 million to $700 million, I think last quarter, you mentioned being towards the upper end. It seems like the working capital use from our perspective is greater than we expected or maybe longer than expected. Can you talk about where you are in that $600 million to $700 million range? And also, to what extent some of that spread income may, I guess, be realized in '21 as well? Does anything go out that far?

Yes. Yes, Gabe, I think on the $600 million to $700 million, I think we're still sort of comfortable with that range. There may be some that go into 2021, but the majority of it will be realized this year.

Okay. Buena, before you give our replay information to our listeners, we'd like to thank everyone for joining our call today, and we're going to sign off as a company right now. But Brennan, if you would give them the replay formation. Thank you.

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