Enterprise Products Partners LP

NYSE:EPD

Earnings Call Analysis

Enterprise Sets Records Despite Market Weakness

In 2023, Enterprise Products Partners experienced a year of financial and operational milestones, setting nine financial records and thirteen operating records despite a downturn in commodity markets. The company reported $7.6 billion in distributable cash flow, retaining $3.2 billion, and covering distributions 1.7 times. Even with natural gas prices 60% lower than in 2022, crude down 20%, and other NGLs facing similar price reductions, Enterprise transported a record 12.7 million barrels per day in Q4, an increase from 11.5 million barrels a day in Q4 2022, and exported a record 2.3 million barrels per day. The company declared a Q4 distribution of $0.515 per common unit, up 5.1% year-on-year, and paid out about $4.3 billion in distributions throughout the year. Looking ahead, Enterprise has $6.8 billion in major projects underway, with $1.1 billion expected to be completed in 2024, signaling confidence in continued strategic growth and cash flow generation.

Financial Performance and Distribution

The company generated a noteworthy $7.6 billion in distributable cash flow in 2023, achieving coverage of 1.7x and retaining $3.2 billion. This exemplary financial performance was underscored by the setting of 9 financial records and 13 operating records despite a challenging environment for commodity markets. In the fourth quarter, the company reported a net income of $1.6 billion or $0.72 per common unit, an improvement over the $1.4 billion or $0.65 per common unit in the same quarter of the previous year. To reward investors, a distribution of $0.515 per common unit was declared, marking a 5.1% increase from the prior year's fourth quarter distribution.

Operational Achievements and Growth Initiatives

The company transported an all-time high of 12.2 million barrels per day in 2023, a significant leap from the 11.2 million barrels per day in the previous year. Export activities were strong, with 2.3 million barrels a day of liquid hydrocarbons exported. The company also placed several key assets into service, including two new natural processing plants in the Permian Basin and an NGL fractionator, but faced challenges with the PDH 2 facility, which has now been addressed. Looking to the future, $6.8 billion major organic projects are underway, striving for completion and intended to bolster the strategic growth of the system.

Capital Investment, Debt, and Export Volumes

The company made a total capital investment of $1 billion in the fourth quarter, contributing to a yearly total of $3.3 billion. This informed an adjusted forecast for 2024, which now anticipates growth capital expenditures of $3.25 billion to $3.75 billion. On the financial side, total debt principal outstanding was approximately $29 billion as of year-end 2023. Notably, the company achieved a significant presence in the European LNG market, surging from less than 10% to 50% market share at its peak.

Outlook Amidst Geopolitical Challenges

The company, celebrating its 25th anniversary, reflected on its resilient growth from $1.2 billion to almost $90 billion in enterprise value. The future seems bright as the appetite for U.S. hydrocarbons continues to swell despite geopolitical tensions. The company expressed confidence in meeting global energy demands and is poised to navigate upcoming challenges with its robust liquid hydrocarbon storage and export franchises, alongside its committed workforce.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and thank you for standing by. Welcome to the Q4 2023 Enterprise Products Partners LP Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Randy Burkhalter, Vice President of Investor Relations.

[Randy Burkhalter, executive]

Thank you, Josh. Good morning, everyone, and welcome to the Enterprise Products Partners conference call to discuss fourth quarter '23 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. 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 it over to Jim.

[A. Teague, executive]

Thank you. We generated $7.6 billion of distributable cash flow in 2023, providing 1.7x coverage and we retained $3.2 billion. We set 9 financial records and 13 operating records in '23. Our 23 operating results included records in NGL pipeline transportation, ethane exports, total NGL marine terminal volumes, NGL fractionation volumes, fee-based natural gas processing volumes and crude pipeline and natural gas transportation volumes. And barrels of oil equivalent per day, Enterprise transported a record 12.2 million barrels a day in 2023 compared to 11.2 million barrels a day in 2022. During the fourth quarter, we transported 12.7 million barrels a day compared to 11.5 million barrels a day in the fourth quarter of 2022. We exported a record 2.3 million barrels a day of liquid hydrocarbons. And that includes everything from crude oil to LPGs, ethane, refined products and basic petrochemicals, ethane and propylene. When you look at our exports, it's clear that enterprise is not a one-trick pony. It's quite remarkable that volumes across all our pipes and facilities increased sequentially each quarter in 2023, supported by the strong supply and demand fundamentals for hydrocarbons from the Permian and other basins we serve, integrated with the midstream services we have, including exports that we just discussed. Relative to commodity markets, 2023 was a relatively weak year, especially for natural gas and natural gas liquids. Nonetheless, enterprise proved once again that we don't need really high prices to make substantial returns. The financial records and 13 operating records summarized were achieved in a commodity price environment where natural gas prices were down almost 60% from '22. Crude was down nearly 20%. Propane was down 36%. -- ethane was down almost 50%, and the NGL processing basket was down 35%. Relative to the several 23 records at our marine terminals, we have long said that hydrocarbons would price to export proven once again in 2023. In growth capital during '23, we completed construction of $3.5 billion of process projects Significant assets put into service include 2 new natural processing plants in the Permian Basin and our 12th NGL fractionator in Chambers County. All of these assets were essentially full after operations began. While production of our PDH 2 facility was completed in the third quarter of '23. We spent much of the remainder of the year addressing start-up issues. As a result, this plant did not meet our expectations in earnings in '23. We believe most of these issues have been resolved, and we anticipate much higher utilization rates this year. We began '24 with $6.8 billion of major organic projects under construction with 3 projects representing approximately $1.1 billion in capital investment expected to be completed this year. Major '24 projects include our Texas Western products pipeline system and 2 additional processing plants in the Permian. We have considerable amount of growth capital underway. All of these projects provide strategic growth to our system and can add considerable visibility to new sources of cash flow. I wanted to take a minute to talk about Project 9.3. We started this project in '22 as an incentive for all employees to find innovative ways to improve the bottom line. This was especially important as we in the industry were reengaging after COVID and face the challenges of a global economy in '23. We achieved the goals we set for ourselves, both in 2022 and 2023. We are very proud of our employees for that accomplishment. That said, we will not have a Project 9 type program for 2024. You've always heard me say, if you want to know where we're going, look at what we're doing. The Permian Basin has been the cornerstone for much of our growth capital. As we look at 2024 and beyond, we see supply and demand opportunities as the Permian continues to grow and the world continues to have an ever-increasing appetite for U.S. hydrocarbons. We noted in the press release that these may be the most geopolitically challenging times since World War II, but it's abundantly clear that all of this chaos is leading itself to a growing appetite for the most stable hydrocarbon supplies in the world, the U.S.A. in spite of government and regulatory challenges. Without a doubt, relative to energy, our nation's biggest fuel political challenges continue to be self-inflicted. Enterprise has one of the world's leading natural gas liquids franchise and we have the liquid hydrocarbon storage and export franchise. On top of all of that, we have a dedicated employee base that creates value regardless of the environment. 2023 marked our 25th anniversary as a public company. It's grip been a great quarter century it has been for the U.S. energy industry. It included the downfall of the energy merchants, the great financial crisis, the innovation of the E&P and oilfield service industries to unlock the potential of the shale plays, which is still continuing. It included the near death and remarkable renaissance of the U.S. petrochemical industry from having the highest cost feedstock pre-shale to now the lowest cost. It included 2 OPEC price wars, a once-in-a-century pandemic and the reemergence of geopolitical upheaval. During this time, we stuck to our objectives of investing capital at reasonable returns, providing reliable, value-added services to customers, consistently returning capital to our partners and increasing the value of the partnership for the long term. During this time, the enterprise value of the partnership has grown from $1.2 billion to almost $90 billion. The value of our partnership units has increased almost 400%. We increased our distribution 25 consecutive years at an approximately 7% compound annual growth rate, and we've returned $52 billion of capital to investors through distributions and buybacks. We have high-quality employees, and we thank our employees, we thank our customers, our service providers, our banks and our investors for the contributions to this success. We are looking forward to the exciting opportunities and challenges for the next 25 years as the world's population, quality of life and demand for energy reaches new heights. But frankly, based on what I see in the future for energy, I'd give anything if I could turn the clock back and be 50 years out. With that, I'll turn it over to Randy.

[W. Fowler, executive]

All right. Thank you, Jim. Good morning, everyone. Starting off with the income statement. The net income attributable to common unit holders for the fourth quarter of 2023 was $1.6 billion or $0.72 per common unit on a fully diluted basis. This compares to $1.4 billion or $0.65 per common unit for the fourth quarter of 2022. Adjusted cash flow from operations, which is cash flow from operating activities before changes in working capital was $2.2 billion for the fourth quarter of '23 compared to $2.1 billion for the fourth quarter of '22. We declared a distribution of $0.515 per common unit for the fourth quarter of 2023 and which is a 5.1% increase over the distribution declared for the fourth quarter of '22. The distribution will be paid February 14 to common unit holders of record as of the close of business on January 31. In the fourth quarter, the partnership purchased 3.7 million common units of the open market for $96 million. Total purchases for 2023 were $187 million or 7.2 million of common units, bringing total purchases under our buyback program to over $900 million. I mentioned it on the last call, looking at our 5 largest midstream peers by market cap. Since 2019, Enterprise is the only midstream energy company to reduce absolute outstanding units outstanding without significant asset sales. In addition to buybacks, our distribution reinvestment plan and employee unit purchase plan purchased a combined 6.6 million common units on the open market for $172 million during 2023. For 2023, Enterprise paid out approximately $4.3 billion in distributions to limited partners. These distributions, combined with the buybacks for the year, resulting in our having a payout ratio of adjusted cash flow from operations of 56% and a payout ratio of adjusted free cash flow of 94%. Total capital investments in the fourth quarter of 2023 were $1 billion, which included $823 million for growth capital projects, $65 million for the acquisition of a small natural gas storage facility that we have historically leased and $129 million of sustaining capital expenditures. Capital investments for the year of 2023 were $3.3 billion, which includes $2.75 billion of organic growth capital projects, $100 million in asset acquisitions and $413 million of sustaining capital expenditures. During the third quarter call, we estimated $3 billion of organic growth capital expenditures in 2023 and a range of $3 billion to $3.5 billion in 2024. Due to the timing of expenditures, we had approximately $250 million of CapEx shift from 2023 into 2024. Therefore, we now expect our 2024 growth capital expenditures to total $3.25 billion to $3.75 billion. We expect 2024 sustaining CapEx will be approximately $550 million, which includes dollars for planned turnarounds at PDH 1, our IBDH and our high-purity isobutylene facility. These scheduled turnarounds typically occur every 3 to 4 years for these type plants. Our total debt principal outstanding was approximately $29 billion as of December 31, 2023. Assuming the final maturity date of our hybrids, the weighted average life of our debt portfolio was approximately 19 years. Our weighted average cost of debt is 4.6%. At December 31, approximately 96% of our debt was fixed rate. Our consolidated liquidity was approximately $3.9 billion at the end of the fourth quarter, which includes availability of our credit facilities and unrestricted cash. Adjusted EBITDA, as Jim mentioned earlier, was $9.3 billion for 2023. We ended the year with a consolidated leverage ratio of 3.0x on a net basis after adjusting debt for the partial equity treatment of our hybrid debt and reduced by partnership's unrestricted cash on hand. Our leverage target remains 3x plus or minus a quarter turn, so 2.75x to 3.25x. In January, we issued $2 billion of senior notes comprised of $1 billion of 3-year notes at a coupon of 4.6% and $1 billion of 10-year notes at a 4.5% coupon. The proceeds from this offering will go toward an upcoming $850 million debt maturity in February, I guess, this month, and funding our capital expenditure program. We appreciate the continued support of our debt investors. Moving on to future events. Enterprise will host an analyst and investor call on Wednesday, April 3. This will be in lieu of our in-person Analyst Day. This call will include overviews on our current outlook, near-term objectives, allocation of capital as well as a fundamentals update from [ Tony ]. Q&A will follow our prepared remarks. More information will be provided in the coming weeks. Before we open the call up to questions, Jim and I would like to take a moment to recognize Randy Burkhalter, our Vice President of Investor Relations. After a 46-year career in the industry, Randy has announced his retirement for April of this year. Randy has led our Investor Relations effort for the past 21 years when he joined us shortly after our acquisition of the Mid-American Seminole pipelines. Through the Annual Institutional Investor magazine, all American team surveys, Enterprise and our Investor Relations team have been consistently recognized by the sell side and buy side community as one of the best in the midstream sector. Randy has been integral to leading this effort. We are grateful for Randy service, his integrity, his attention to customer service and his industry renowned social prowess. Please join us in congratulating Randy on his 46-year career and a job well done. Most of you have met Libby Strait. Libby will succeed Randy in leading our IR effort. Libby is one of our young all stars who joined the company in 2013 and worked in commercial roles of increasing responsibility across several of our business units before joining the IR team 2019. She and Michael Szarek, another one of our all-stars will comprise our IR team.

[A. Teague, executive]

And Randy, as it relates to render culture, I think it's fair to say we have already scheduled a quarterly visit by Randy into the building to have a couple of scotches bar downtown at least once a quarter.

[W. Fowler, executive]

With that, I think we're now ready to open the call up for questions.

[Operator]

Thank you. [Operator Instructions]. Our first question comes from Michael Blum with Wells Fargo.

[Michael Blum, analyst]

Thanks. Good morning, everyone, and congrats, Randy and Jim. I wanted to start with maybe your latest views on Permian growth in '24, both for oil and for gas. And then a related topic. Clearly, there's it seems like there will be a need for another premium gas takeaway. You had talked about a brownfield project a little while back. It's been quiet lately. So I wanted to get your latest thoughts on a Permian gas takeaway solution in light of your growth outlook.

[Tony Chovanec, executive]

Michael, this is Tony. In our last analyst meeting, which was March of 2023, we talked about growth in the United States of, call it, 1.8 million barrels. I'll just go to oil right now. We gave you some basic metrics as to what happens with the oil, but 1.8 million barrels in the '23, '24, '25 time frame. Obviously, there was a lot of pushback when we published that forecast from all sides, including producers that haven't looked at the number like we had. And what I'll say about that number now of that $1.8 million, we said $1.5 billion in the Permian Basin. Certainly, given the performance of producers during 2023, the producer community is on track to meet and likely beat those numbers. And I don't know how that changes at this pace and then the combined growing wedge of PDP that a lot of people forget about in key basins, coupled with the continuous improvement in efficiency and productivity that we see from the producer community. So we'll talk about it more in early April, but I think the clip notes now or what we know is it's really going to be hard not to at least meet and likely beat that number as we look at the 3-year period, very much Permian dominated. Relative to gas pipelines, we've talked about simple metrics before for every 1 million barrels incremental that you have with oil. You have somewhere in the neighborhood of available 400,000 to 500,000 barrels of NGLs and for rich gas, call that anywhere from 3.25 to 3.5 Bcf. So you do the math, you look at what we have today and the incremental capacity over the next 2 years is coming on is appreciable. Will there need to be more between now and 2030? Yes, the answer to that is yes, in some form of fashion, whether it be brownfield on existing pipes or another greenfield pipe.

[Michael Blum, analyst]

Tony, maybe just on gas, my second question. I just wanted to ask about the pause in LNG permitting. And well, I know you don't have an LNG asset per se. Curious how if at all, this would impact your business in '21 and beyond?

[A. Teague, executive]

Michael, this is Jim. And I guess I wonder, is it truly a pause? Or is it something more? And were those projects that are not under construction but going through the regulatory process, be allowed to continue to go through that process during this temporary pause or will all work stop? Our fundamentals group as well have 75 years of reserves at current production with current technology. You look at it, our LNG has had a huge difference to our allies. In 2019, we averaged 1.85 Bcf a day to Europe. In 2023, we exported on average 7.5 Bcf a day with a winter peak of over 9 Bcf a day. We went from less than 10% market share of LNG into Europe to 50% market share. Now Rusty Braziel and his RBN blog this morning has an excellent write-up on this issue. So really, you have to sit back and wonder, is this a temporary pause? Or is it a political pause?

[Operator]

Our next question comes from Neel Mitra with Bank of America.

[Indraneel Mitra, analyst]

Congratulations for Randy. First question was on the NGL exports and hitting a quarterly record. Could you maybe comment on the export dynamics right now just with weaker PDH demand and the plants coming up slower than normal, but also lower NGL prices in the U.S. and how that are trending through 2024?

[Tug Hanley, executive]

Yes. This is Tug Hanley. So we've had strong operational performance on our EHT assets to let to healthy volumes going across the dock. There's also been a decrease in freight values we've seen, which is continuing to support stronger FOB values. With respect to the weaker PDH margins on an international level, the PDH margins have improved, but there's still a lot of overcapacity. So necessarily weak margins don't lead to decreased NGL demand because the demand is still ultimately there.

[Indraneel Mitra, analyst]

Got it. And then my second question is related to Bahia and I was just wondering if you could maybe give some puts and takes as to where you can see additional volumes picked up, I believe Navitas isn't going through your system right now, maybe the leasing volumes come up for recontracting in later in the decade and where you could see some additional opportunities to pick up volumes that aren't contracted onto your system right now?

[Justin Kleiderer, executive]

Neel, it's Justin Kleiderer. Yes. So like 3 buckets of Bahia that we think about, first and foremost, is our growing G&P footprint. So you think about a metric of every new gas plant we've put on, we yield about 40,000 to 45,000 barrels a day of NGLs into Bahia. So we're growing our footprint, both in the Delaware and the Midland. So that's always the baseload as we think about Bahia. And then on top of that, we have a robust set of third-party agreements. We've got 40 connections on our Y-grade system. That gives us a lot of diversity to go capture incremental third-party volumes as that market ebbs and flows. And we've got a good runway of contracts on those that get us to the back end of the decade without having to really worry about in the contract roll-off and then third, our expectation is that seminal won't be an NGL service once comes online. You add all those up, and that's how we landed on the capacity that we created out of the gate at $600 a day.

[A. Teague, executive]

And Natalie do you think we're through building processing plants out there?

[Natalie Gayden, executive]

I don't think we're through.

[Operator]

Our next question comes from Theresa Chen with Barclays.

[Theresa Chen, analyst]

I'd like to echo congratulations to Randy on his retirement. After a stellar career, we wish you continued social progress and also congratulations to Libby and Michael. When we look at your organic project backlog, it's a robust set of opportunities. And as we look beyond 2025, just trying to think about what a run rate should be, knowing that you still do have projects under development and some of that doesn't sizable, is that $3 billion or $3-plus billion number a good run rate? Or how should we think about that?

[W. Fowler, executive]

Theresa, I'll start off. We're $6.8 billion worth of projects under construction and Again, this year, it will range from $3.25 million to $3.75 billion. 2025 is $3 billion. And then there's a little bit of roll-off with that $6.8 billion that creeps over into 2026. The one thing I would just note is in that $6.8 billion, we've got 2 lumpy projects being Bahia pipeline and also the export facility that we're building on the Neches River. And so if I come in and look forward and our expectation will continue to see build-out with natural gas processing with the gas gathering and compression that supports that. I keep coming back that I really think that going forward, absent spot that we're more in the $2 billion range. It's where I keep coming out. Just again, because we've had some lumpy projects. We just put PDH 2 into service in 2023. That was another lumpy project. So just don't foresee a lot of those lumpy projects coming with the exception of spot. That's probably a 3-year construction cycle.

[Theresa Chen, analyst]

Understood. And in terms of projects that are coming online near term, for your Texas West product system, can you remind us how much of that is underwritten by third-party commitments versus open capacity that you hope to market and capture that ARP, especially in light of the fact that since you announced the project, one of your midstream competitors who also have significant marketing capabilities, bought a huge refined product system and is also looking to close PAT and PAT IR.

[Justin Kleiderer, executive]

Theresa, it's Justin Kleiderer again, and Doug may chime in on a piece of that as well. But as we develop the project, it's really has developed into really a rack marketing model. we had the first phase of start-up really impending and the timing of the rest of it should be lined out in the deck. But we've got significant interest. We've got 40 third-party contracts agreed to across the terminals, and we're signing up more seemingly daily. So people are just itching for it to come on. But we do think similar to Dixie and our legacy propane long-haul pipelines being an uncontracted rack-based model that, that's the model that we're going to see on TW.

[Operator]

Our next question comes from Jeremy Tonet with JP Morgan Securities.

[Jeremy Tonet, analyst]

And Randy, I want to Rich wish you congratulations here. Good luck with everything going forward. You will be missed and thank you. And I just want to start off, I guess, with the recent Houston Ship Channel enhancements that we've seen over time here. Wondering if you could comment on how that's impacted your LPG export capabilities. Have you seen any improvements there given the changes? Just curious how that has developed.

[Bob Sanders, executive]

Yes. This is Bob Sanders. Late in the fourth quarter last year, the Houston pilots removed the daylight restriction on LPG ships. So we can sell 24 hours a day, loaded or empty, and we are incrementally picking up the number of vessels we're bringing in to try to maximize the utilization of the refrigeration units that we've got right now. So we are seeing a direct benefit.

[Jeremy Tonet, analyst]

Got it. Just curious if that's a minor or maybe bigger expansion? And also, Tony, I guess I'm curious, with the thoughts on LPG pricing here, there's a concern in the marketplace that LPG exports might be maxed out and that could dislocate domestic pricing relative to international price marker. So just wondering how you see that playing out.

[Bob Sanders, executive]

I'll answer the first piece a little bit. We're seeing about a 5% to 7% gain at this point.

[Tony Chovanec, executive]

I think on pricing, you've seen NGLs catch a bid here recently. I think some of what Bob mentioned has helped with pricing. As freights come off, there's been a benefit certainly to propane and butane on the flat price. But if you look at the growth, as Tony mentioned earlier, we have NGLs growing at a faster pace than crude oil. We're seeing it across our system. Storage is going to become more increasingly valuable. These expansions don't come on until 5, 6 time frame. So we expect the docs to remain at capacity. And then ultimately, the flat price of NGLs will be reflective of that.

[Bob Sanders, executive]

Yes. I always add that we're actually seeing that already manifest itself on our spot dock values, they're upwards in the double digits right now.

[Operator]

Our next question comes from Brian Reynolds with UBS.

[Brian Reynolds, analyst]

And Randy, thanks again for all the time you spent with me and the community over the last 21 years, and thanks for leaving the team in good hands with Libby and Michael. Maybe to start off on the NGL macro. Jim, on the last call, you kind of talked about competitive market dynamics right now where EPD seems to be threading the needle of maximizing return while preventing some new entrants into the integrated NGL value chain. While I appreciate some of the opening remarks from Tony to Michael's question around Permian growth. Just curious how we should think about maybe volume growth is going to be really attractive over the next few years. But curious if we can talk about how transportation frac and export rates should look relative to what they've been in the past decade is really attractive.

[Brent Secrest, executive]

Brian, this is Brent. I mean it varies based on the service. I think everything that you see on the processing side, certainly on the long-haul pipeline is a new build economic type number. Fractionations probably in that group, too. I think when you look across NGL docs, when you look at the entrants that are in that space right now, I think anybody who wants to be in that space is going to have to compete with brownfield economics. And if you look at where FOB values are going for both ethane and LPGs, it is incredibly, incredibly difficult to make a project accretive. That's a new entrant in that space.

[A. Teague, executive]

So Brent, to put directly. While Doug says on our spot deals, we have double-digit terminalling values. What can you do a 5-year deal in?

[Brent Secrest, executive]

I don't want to be totally specific on this, but the fees on LPGs are considerably less than what we're seeing today. I don't think anybody is going to go out there and try to justify a project based on the values that we see today because we have capacity that we're contracting. I think others have capacity that are contracting. And then on the ethane piece, that's a very competitive market. I would have a hard time thinking enterprise would be in that market if we hadn't been one of the first ones in that market.

[A. Teague, executive]

So you couldn't build a greenfield terminal based on what we think the terminaling fees are going to be.

[Brent Secrest, executive]

Absolutely not.

[Brian Reynolds, analyst]

Appreciate all that. As my follow-up, maybe just an update on the spot license and permit process. You alluded to some comments around LNG and maybe having some impacts on the upcoming U.S. elections. Just curious if we should see any risks to the time line around the spot licensing and permitting process relative to maybe expectations from last year.

[A. Teague, executive]

Brian, I didn't I didn't say anything about the elections by the way. Right now, we've got a record of decision, and I'll let Bob tell you what else we got. But right now, we don't see anything that should preclude us getting that license.

[Bob Sanders, executive]

So where we are with Myriad, we have completed all the requirements to receive the license. We're in constant contact with Myriad. As a matter of fact, we have seen a draft of the license, which they asked us to comment on, which we've commented on, and they've accepted our changes. So everything is basically done. We're just waiting on knowledge that we've got the license.

[Operator]

Our next question comes from Neal Dingmann with Truth Securities.

[Neal Dingmann, analyst]

Randy, congrats and look forward to hearing what's next for you. I can only imagine. My first question is on guys on marketing. Specifically, I'm just wondering, do you all capture some of the commodity price volatility experienced with this last, I guess, I'd call it the January Cold Snap, perhaps in Waha or the HSC spreads.

[Brent Secrest, executive]

This is Brent. We were able to capture some. There were some puts and takes on the whole weather event. There were some operational issues that we had in Midland that are getting fixed. But from a marketing perspective, there was some arbitrage capture on our side.

[A. Teague, executive]

We pulled all our levers is what you're saying.

[Brent Secrest, executive]

That's right.

[Neal Dingmann, analyst]

Great. And then my second question, just on the PDH plant. Just wanted it sounds like for the second quarter row, you all mentioned a bit of operational challenges maybe with the reactor and licenses issue. I'm just wondering, I think, Randy Fowler, you mentioned, I think, last quarter, you thought they'd maybe be more one-off. And just wondered if something changed here? And maybe just talk about your future view of the ops there.

[Graham Bacon, executive]

This is Graham. Yes, we did have some operating issues in the fourth quarter with the PDH plant. So some of those are related to some construction-related start-up issues, some design issues. At this point, the unit is up and operating. We're not quite at 100% capacity, but we've got line of sight on the fixes that will be taking place here soon. And I think at that point, we can expect we'll have a good operating unit, all the other parameters of the unit that we look at in terms of robustness and ability to maintain operations are really looking good right now. There's just one more issue we've got to get passed. I think we'll be looking at a good unit there.

[Operator]

Our next question comes from Tristan Richardson with Scotiabank.

[Tristan Richardson, analyst]

Congrats to Randy. We appreciate all the time you spent with us over the years. Mr. Fowler, you guys have framed up the return of capital side for a long time. And we've seen that adjusted payout ratio increase over time. And just curious with the stability you're seeing in the earnings base and the stability you're seeing in CapEx, as you mentioned, over the long term, do you see that payout ratio changing meaningfully over time? Or is there a way to think about a long-term target for that adjusted cash flow ratio, particularly when you sit in such an advantaged position from a leverage standpoint?

[W. Fowler, executive]

I'm thinking of how to frame that because you had quite a bit in there. Several of our peers in the energy sector have come in with a formulaic approach on returning capital. And I think we've just been hesitant to doing that because we live in a very dynamic world. And opportunities come up. And so really coming in and locking into a formula so much distribution and so much buyback. More often than not, when I've seen companies come in with those formulas, they're forever tweaking them or resending them. And they really have a short shelf life. I really just come back and look at -- Jim went through some of our history of returning capital for our first 25 years. We're going to continue to come in and do that. As far as distribution growth, I think you've seen over the last 2 or 3 years, we're back to mid-single-digit distribution growth, which is good to be there. And then we've been doing buybacks steadily on this.And obviously, if we come into an era where we're not spending as much CapEx, then we'll have more flexibility to come in and do buybacks. There'll still be opportunistic buybacks. And I think you saw that in the third quarter, the unit price was really pretty strong, and we just opted not to come in and do any buybacks in the third quarter of 2023. But when we got into year-end tax selling and saw the weakness in 2024, we executed buybacks at a better level, even considering the distribution that the November distribution, we still executed at a better buyback level in the fourth quarter than what was available in the third quarter. So I think we'll continue to be opportunistic going forward. And then I think we just need to see what kind of opportunities that we have in the future. But again, I come back in and I don't know of another midstream maybe other than... What's the Canadian company? That has successfully returned capital the way that we have over the last 25 years. So that was long-winded, but I hope that helps.

[Tristan Richardson, analyst]

I appreciate it, Randy. And then maybe just on the question to ask it a different way. I think given the pace of [ Engio ] Pipeline volumes today, plus Tony's forecast and Justin's earlier comments, is there an opportunity for the capacity of the [ iA ] to expand as you progress through construction as we go into '25? Or are we seeing enough competing pipes in the market where this should be pretty balanced in '25?

[Justin Kleiderer, executive]

Yes, Tristan, this is Justin. We picked 600 for the reasons before, but you think of a 30-inch pipeline, if it's fully horsepowered it could do upwards of $1 million, but we're trying to be capital efficient about how we phase into it. So if our forecasts are right and we need more than what we have today, we can add pumps on it to upsizing.

[Operator]

Our next question comes from Keith Stanley with Wolfe Research.

[Keith Stanley, analyst]

Congrats as well, Randy, you've definitely been one of the most helpful and friendly IR people that I've gotten a chance to work with. So thank you. I wanted to start just on the outlook for the year. So understanding you're not giving the employee goal for EBITDA for 2024. At a high level, though, you had a lot of momentum exiting 2023 in your results. You have a fair amount of capital entering service with PDH 2 and a couple of plants. You're still constructive on volumes. Is it fair to say 2024 should be a relatively stronger growth year? Or are there any headwinds or things you would point to versus 2023 that could be an offset?

[A. Teague, executive]

This is Jim. I think 2024 is shaping up to be a better year than 2023. It's not just the assets we've brought on. We're seeing, for example, and Brent's got some information, our processing margins on what is not fee-based is looking better. You might want to address that.

[Brent Secrest, executive]

Yes. If we just look at the fourth quarter, we have floors in our processing contracts, especially around the Midland Basin. So in the fourth quarter, I think those floors were at around -- they were all hit at about 97% of those contracts hit the floor. In fact, December was 100%. So as things get more constructive on gas, and we'll see if that happens, certainly, there were some benefits in January we're seeing some benefits in the current month on NGLs, but that number is probably around 62% in January to hit the floor. So I think from a processing standpoint, there's definitely benefits across the portfolio that we'll see.

[A. Teague, executive]

It seems like each quarter, we transport more and more hydrocarbons.

[Unknown Executive]

Yes, Q4 volumes are definitely strong..

[W. Fowler, executive]

Keith, this is Randy. I think the other thing is just as you -- again, we've got a pretty good track record that if you look out over time, our average return on capital has been -- when you look at the total company, it's ranged from 10% to 13%. And then when you come in and you look at the CapEx, specifically, the projects that we're putting into service and the level of capital expenditures that we have. I think what that translates to over a 3-, 4-year period is probably mid-single-digit EBITDA growth. Now you're not going to be able to use a ruler on that number, but that's about what it works out to be. And then you may have some variability in and around that kind of number. But I think if you come back in and just look at what we've been able to do in the past and look at the amount of capital investment that we're making. I think that's where it would take you.

[A. Teague, executive]

The other thing is look at our people are relentless and visiting customers and getting new deals. I've been shocked at the appetite, for example, for our ethane export dock. And so we're probably going to build new processing plants in the in the Permian. And I would expect that we're going to fill up our ethane export docks and our LPG docks. The other thing we're seeing is more crude flows to Houston, so we're seeing more crude across our docks.

[Keith Stanley, analyst]

That's all very helpful. And Jim, if I can follow up on that last point, the NGL export volumes were very strong in Q4 and you noted the removal of the daylight restriction is helping you. Can you give us a sense of how close the company is to its capacity based on that Q4 export number? Are you able to keep increasing exports this year before some of the expansion start-up in 2025?

[A. Teague, executive]

I think if you look at NGLs as a whole and maybe crude oil, yes, if you look at LPG, I think things are going to be tight in terms of doc space on LPG. That gets resolved probably mid-next year, but 24% and maybe part of 25 LPG is going to be pretty tight. Do you have something...

[Operator]

Our next question comes from Jean Ann Salisbury with Bernstein.

[Jean Ann Salisbury, analyst]

Do you forecast Permian processing utilization staying as tight as it is now over the next couple of years? Said another way, is it a stretch to say that the timing of processing coming on will dictate the pace of Permian growth in your view?

[Brent Secrest, executive]

We'll take that. Jean, this is Brent. I expect it to stay tight. When we look at our build-out and the contracts that come on, there may be a short little window that there's excess capacity, but it fills up very quickly. We'll lean on Tony for his forecast. But what Tony has told us in years past has certainly come true, if not, it's been even more prolific. And then when you look at capacity right now, I think there is gas that's being held back in the basin. It's waiting on compression and it's waiting on processing capacity.

[Natalie Gayden, executive]

That's exactly that. It's not just processing. Some of it's gathering and compression in the field that's behind. So once we see that bottleneck get fixed, we'll see processing get full very quickly.

[Jean Ann Salisbury, analyst]

That's very helpful. And then one more. There's some discussion of upcoming Haynesville gas pipelines possibly being delayed due to legal issues. Is there any further expansion potential on Acadian or is that maxed out here?

[Natalie Gayden, executive]

We're maxed out after our last expansion. I'd say the only -- I mean, we may be a benefactor of that project late. However, Haynesville is flat to staying flat, which is that, Tony?

[Tony Chovanec, executive]

Yes. Jean, there's so much discussion about the Haynesville and what's going to happen. And honestly, I'm somewhat befuddled by it. And I think that's the right term. We've got LNG coming on in the Louisiana area. The call it is 4.5 to 5 Bcf over the next 2 years. And that's a big number. And there's nothing that the whole permitting thing that has recently happened and Jim addressed so well this morning. It impacts that. So we think that or we talk like Louisiana and the Haynesville has a chance to go to hell in a handbasket. And I'm sorry, I just don't see it, unless I'm missing something. The Haynesville, last but not least, is one of the primary basins for a massive amount of long-term storage of gas reserves. No question about it. So we still see it as an ideal and a cornerstone basis cornerstone basin for us relative to natural gas.

[Jean Ann Salisbury, analyst]

Thank you, Randy, for all of your help over the years. You'll be missed. That's all for me.

[Operator]

Our next question comes from Spiro Dounis with Citi.

[Spiro Dounis, analyst]

Two very quick follow-ups from me. One, Randy, just want to go back to the distribution growth and follow up on Tristan's question. The cadence the last call or 2 years or so has been an increase of about every 2 quarters, tracking around that 5% annual growth. I know you like to keep us guessing. So as we think going forward, how opportunistic is the distribution growth from here? Or is that something we should really expect going forward?

[W. Fowler, executive]

Yes, Spiro, again, I'd just go back to our track record. We don't like to get out and front run our Board. Again, I think with the CapEx we're deploying and the return on capital that we're expecting to get. I think coming in and we've been increasing distribution on 25 years in a row, and I feel pretty good about 26%. So we've been doing it around mid-single digits.

[Spiro Dounis, analyst]

Second one just around M&A. You all purchased some natural gas storage assets in the quarter, pretty small for you, so I don't want to read into it too much. But just curious, is this sort of the beginning of a bigger push into natural gas storage? Or is it more opportunistic as you look at the rest of your asset base, are there more opportunities like this to bolt on?

[A. Teague, executive]

That's at Wilson storage that we've leased for years and years, and in the contract, they had the right to put it to us. and I put it to us. And it was a reasonable price. So we weren't upset. And that was legacy going back to GulfTerra Energy Partners. We inherited that when we acquired GulfTerra.

[Spiro Dounis, analyst]

I will save my Project 10 question for the April call.

[John Burkhalter, executive]

Josh, this is Randy. Let me put in. We have time for one more question.

[Operator]

Our next question comes from John Mackay with Goldman Sachs.

[John Mackay, analyst]

I just wanted to touch one more time on the export side. I understand that FOB spreads, premiums are really high right now, but you talked about kind of outer coming down further. Is it really just we are going to see these rates stay high until yours and your competitors' projects come online in 2025? Or would you expect some benefit there once or if the Panama Canal starts to clear up?

[Unknown Executive]

Yes, we expect the rates to remain elevated until the expansion comes online from us and our competitors, call that mid-25. But with respect to the Panama now, issues and even issues in the Red Sea. We really haven't seen that impact the file value too much. The VLGC fleet has done a really good job that reposition itself. There's over 380 VLGCs on the water to help mitigate those issues. In fact, as I mentioned earlier, we've seen freight come down. So I don't really see that impacting the FOB values too much from now. How many VLGCs came on in '23. How many do we expect in '24? Yes. I call it around north of 40 VLGCs came online in 2023, and there's going to be another 22 or so coming online in '24.

[John Mackay, analyst]

I appreciate that. And maybe just one more clarification earlier. I appreciated the color on the fee floors on processing in the Permian. Just one thing we wanted to try to frame up, I mean, if we look year-over-year, Permian processing volumes are up about half a B, but margins effectively flat. Just curious if you can comment, is that all commodity impact? Or is there some underlying deflation on the fee side as well?

[Unknown Executive]

It's all commodities.

[Operator]

Thank you. I would now like to turn the call back over to Randy Burkhalter for any closing remarks.

[John Burkhalter, executive]

Thank you, Josh. Before we close out, I'd like to thank Randy for the kind comments and the offer from you, Jim. And many thanks to all of you who have worked with for the years .

[Unknown Executive]

He's getting a little emotional.

[John Burkhalter, executive]

Thank you.

[Natalie Gayden, executive]

And I guess with that, we'll end the call. Thanks to everyone for your participation.

[Operator]

Thank you for your participation. You may now disconnect.