Enterprise Products Partners(NYSE: EPD) is one of the largest energy midstream companies in the country. The master limited partnership (MLP) has a diversified business with assets supporting crude oil, natural gas, natural gas liquids, refined products, and petrochemicals. That business generates lots of stable cash flow to support a distribution that at current share prices yields a juicy 7%.
The MLP has a policy of steadily expanding its footprint, which grows its cash flow. That has given it the fuel to continue increasing its distribution -- it now boasts a streak of 26 consecutive years of hikes. Enterprise Products Partners recently signed a deal that could potentially add a massive new growth driver to the business: carbon dioxide transportation.
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Partnering on a potential new solution
On Monday, Enterprise Products Partners announced an agreement to develop carbon dioxide transportation networks to support the Bluebonnet Sequestration Hub in southeastern Texas. 1PointFive, a subsidiary of oil giant Occidental Petroleum(NYSE: OXY), is developing the carbon dioxide sequestration hub as part of its carbon capture and storage strategy. The oil company has been managing carbon dioxide for 50 years. Now, it's leveraging its expertise in carbon dioxide -- which includes injecting the gas into underground reservoirs to increase the productivity of legacy oil fields -- to deliver solutions that can help advance the decarbonization of the industrial sector.
The oil company believes carbon capture and storage could grow into a $3 trillion to $5 trillion global market annually by 2050. That drives Occidental's view that it could eventually make as much money from that business as it currently makes from producing oil and natural gas.
It's turning to Enterprise Products Partners to help it pursue this opportunity. When the Occidental Petroleum subsidiary provides notice, the MLP will develop a new pipeline network to transport carbon dioxide captured at third-party facilities around the Houston Ship Channel to 1PointFive's Bluebonnet Sequestration Hub. Enterprise will co-locate the new pipeline network along the routes used by its existing pipeline infrastructure. The MLP will earn fee-based cash flows for providing carbon dioxide transportation via the new pipeline system.
The project builds on Enterprise's strong relationship with Occidental Petroleum. The oil company is leveraging the MLP's extensive expertise in providing midstream services to deliver a reliable and cost-efficient solution to transport carbon dioxide for its customers.
Adding more fuel to its growth engine
The potential carbon dioxide pipeline network to support Bluebonnet would add another project to Enterprise Products Partners' backlog. The MLP currently has $6.7 billion of major capital projects under construction. They include several more natural gas processing plants, export terminal expansions, and a natural gas liquids pipeline. The company expects these projects to enter service through 2026. That gives the MLP lots of visibility into its future cash flow growth and its ability to increase its payouts to investors.
Enterprise has several other projects under development to further enhance and extend its growth. The biggest is the Sea Port Oil Terminal (SPOT) project, which finally received a deepwater port license earlier this year. Given the potential of carbon capture and storage, Enterprise Products Partners could eventually develop many more carbon dioxide transportation projects.
Enterprise Products Partners' growing pipeline of expansion projects supports the view that the MLP will be able to continue increasing its high-yielding distribution for years to come. The company also has the strongest balance sheet in the midstream sector, which gives it the flexibility to make accretive acquisitions as opportunities arise. For example, it recently agreed to buy Pinon Midstream for $950 million. That deal will add $0.03 per unit to Enterprise's distributable cash flow next year before any benefit of commercial and operating synergies. Future acquisitions would provide the MLP with even more fuel to increase its distributions.
The fuel to continue growing
Enterprise Products Partners has grown steadily over the last couple of decades by investing in the expansion of its midstream networks. It continues to find new investment opportunities like carbon dioxide transportation, which could become a major future growth driver. Add that growth to its attractive yield, and Enterprise Products Partners looks like a great option for income-seeking investors who are comfortable with the more complicated tax filing situation they'll have as stakeholders in an MLP, which requires them to deal with a Schedule K-1 Federal Tax Form.
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Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and Occidental Petroleum. The Motley Fool has a disclosure policy.
