Enterprise Products cancels Permian pipeline project

Against the back of lower oil prices, US energy provider Enterprise Products Partners has cancelled its 450,000 barrels/day Midland-to-ECHO 4 crude oil pipeline project (M2E4) offering customers who had reserved space on the line amended agreements to use its other three Midland-to-ECHO pipelines in exchange for extending the term of their agreements.

The fall in oil production in the Permian Basin has cut back the need to build all the pipelines planned prior to the Covid-19 pandemic, and which has also reduced demand for crude oil and refined products across the globe.

Many analysts have also said that pipeline capacity already in the Permian basin is more than needed at current production levels. The M2E4 pipeline was planned to transport crude from Midland, Texas – the heart of the Permian basin – to the ECHO 4 terminal in Houston.

Enterprise says the cancellation of M2E4 will reduce aggregate growth capital expenditures for 2020, 2021 and 2022 by approximately US$800 million. Based on currently sanctioned projects, it expects growth capital expenditures, net of contributions from joint venture partners, for 2020, 2021 and 2022 to be approximately US$2.8 billion, US$1.6 billion and US$900 million, respectively

As a result of the cancellation, Enterprise expects to record an impairment charge of approximately US$45 million to its earnings for the third quarter of 2020.

“We are very proud of our commercial team for responding and working with our customers to amend these long-term agreements,” said Jim Teague, co-CEO of Enterprise’s general partner. “This is another example of Enterprise working with customers for a ‘win/win’ solution that allows our customers and Enterprise to better allocate capital during the challenging times of the current economic cycle while retaining long-term, fee-based volumes and revenues for our assets. The capital savings from the cancellation of M2E4 will accelerate Enterprise toward being discretionary free cash flow positive, which would give us the flexibility to reduce debt and return additional capital to our partners, including through buybacks.”

Enterprise Products Partners L.P. is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, refined products and petrochemicals. The partnership’s assets include approximately 50,000 miles of pipelines; 260 million barrels of storage capacity for NGLs, crude oil, refined products and petrochemicals; and 14 Bcf of natural gas storage capacity.

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