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Analyst: Ryan Lee OgdenApril 25th, 2016605 Woodson LaneGardner, KS 66030(913) 620-4736ryan.ogden@ymail.com

Enterprise Products LP

1100 Louisiana Street10th Floor

Houston, TX 77002-5227Phone: (713) 381-6500

Overview……………………………………………………………3SWOT Analysis Table………………………………………………………….....

…….....3

Financial Profile……………………………………………………4

Ratio Analysis Table………………………………………………………………….……4

Industry……………………………………………………………………………………..5Profitability Ratios Table………………………..

…………………………………………5

Benchmark Firms……………………………………………...…..6

Identification………………………………………………………………………………..6MLP Table…………...................

…………………………………………………………..6Energy Transfer Partners……………………………...………...

………………...6ONEOK Partners………………………....……..……………………...…………

6Plains All American Pipeline, LP (PAA)…………………………...

……………..7Spectra Energy Corp. (SE)……………………………………………...

…………7Kinder Morgan Energy Partners (KMI)

……………………………………...…...7Performance…………………………………………………………………………………7

Comparable Companies Valuation………………………………..8

Implied Share Price and Sensitivity Analysis……………………………………………..8

Weaknesses………………………………………………………………………………....9

Discounted Cash Flows……………………………………………10

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Table of Contents

Precedent Transaction Valuation………………………………….11

Summary…………………………………………………………….11

Comparable Companies Tables……………………………………12

DCF (Discounted Cash Flows Table)………………………….….13

Terminal EBITDA Multiple Table…………………….....…………...13

Perpetual Growth Table………………………………………………..14

Sensitivity Analysis Growth Table……………………………………..14

Sensitivity Analysis EV/EBITDA Multiple…………………………...15

Precedent Transaction Table………………....…………...……….16

OverviewEnterprise Products Partners LP (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products in the United States and internationally. They provide these services for consumers and producers of natural gas byproducts in Colorado, Wyoming, Louisiana, Texas and New Mexico. Specifically these services are the transport infrastructure of pipelines and refinement capabilities to separate the crude gases (that are pulled from the wells) into its constituent pieces. They currently operate almost 20,000 miles of onshore pipelines as well as providing storage facilities for the constituent products. They operate 15 fractionators, which use cryogenic temperature to refine and separate the different products for the producers and also facilitate import/export activity for the producers with their terminals.

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Enterprise Products Partners LP also maintains owns and operates 5,400 miles of pipelines for the transportation of crude oil and petrochemical products. Their offshore capabilities are impressive with six oil hubs in the Gulf of Mexico and pipelines over 2,350 miles long (transporting natural gas/crude oil). They handle the transport of the crude oil to refineries and other connecting pipelines for distribution to the end use of the oil/gas.

Being one of the largest MLP’s in the United States, Enterprise Products has been able to enjoy booming success. And even with the recent volatility of the oil market that hit their revenues hard, they were able to cut costs and increase efficiencies so successfully that the drop was equally mitigated. Thus, showing how resilient this long-run company is.

In addition to these efficiencies, EPD has a stellar track record for managing their cash and debt load. Combined with their ability to strategically acquire smaller firms in the industry, EPD has shown a penchant for growth and development. Four such growth projects will go online in 2016 contributing more revenue to EPD’s portfolio.

SWOT Analysis: Strengths Weaknesses

Wide presence geographically Handles cash and debt management

well Less dependent on strictly price of oil

Limited storage capacity Some exposure to the price

fluctuations of oil Oil glut has led to refineries shutting

down until prices go upOpportunities Threats

Strategic cash withholding for consolidations in the market

4 major projects coming online in 2016

Begin large scale export from new port distributions

Alternative fuels/energy gaining popularity

Global demand for oil decreasing

Financial Profile

EPD is a well-run company that provides value to its unitholders in its handling of cash distributions, debt management, and capital expenditures. Because EPD is an MLP they are required to payout a cash distribution to its unitholders on a quarterly basis with a 45-day grace period from the end of a quarter. Over the years they have consistently grown this distribution (without borrowing to cover it) and they have created efficiencies to

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maintain their current track while not overextending themselves. Again, because they are an MLP the metrics used to view their financial health are slightly different. The financial information provided below is from Mergentonline, ThompsonOne, Yahoo.Finance, and the 10-K report.

Ratio Analysis:

2013 2014 2015Distributable Cash Flow Coverage Ratio

1.52 1.51 1.85

Liquidity 2011 2012 2013 2014 2015Current .82 .75 .85 .7 .6

As stated earlier EPD has a good grasp of cash management and being able to allocate the appropriate distribution of cash payout without sacrificing too much cash. This is evident in the Distributable Cash Flow Coverage Ratio. This ratio is calculated by taking the available cash for distribution and dividing it by actual cash distributions. In the industry an MLP should have at minimum a 1.3 DCF Coverage ratio and EPD has maintained higher than this for the last 3 years.

Now the question might be, “Why not distribute all cash? Why retain more than the minimum?” The answer to this is that EPD retains more cash than necessary because in their 10-K they indicated that they were looking to growing through acquisitions. The extra cash build-up not only provides large cash options for a buyout, but it also provides more leeway when the markets are more volatile. Their aggregation of cash is a way of providing more value to their unitholders by growing their footprint. This growth mindedness has factored into my valuation (see below).

At first glance the liquidity ratio seems very low and would put many investors at odds with a pick like EPD. However, in the MLP space it is not uncommon for a company like this to have low liquidity- as their cash dispersions lower current assets significantly. The effect is naturally lower current ratios than in any other industry.

Debt Management 2011 2012 2013 2014 2015Interest Coverage Ratio 3.79 3.95 4.12 3.82 3.29

To augment the earlier point of managing their cash well we are looking at the debt management Interest Coverage Ratio. This ratio tells us how well they are able to cover their interest expense on their debt from their

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operating income. EPD is able to maintain this favorable position by not leveraging itself too highly. Their current debt to equity ratio is .3774; meaning that they derive two-thirds of their enterprise value in equity. They accomplish this through their cash retention philosophy so that their strategic planning does not involve undue debt.

Profitability Ratios

12/31/2015

12/31/2014

12/31/2013

12/31/2012

12/31/2011

ROA % (Net) 5.33 6.5 6.85 6.91 6.38ROI % (Operating)

14.38 18.16 19.67 19.76 20.02

EBITDA Margin %

15.93 9.66 9.03 9.44 8.1

Calculated Tax Rate %

-0.11 0.89 2.3 -0.73 1.31

EPD, though large, has shown that it can be nimble enough to change with current market conditions. For instance, in 2015 when the oil industry experienced sharp declines in revenues EPD was proactive. Although they lost 40% of their revenue, EPD was able to find efficiencies in their process and came out by lowering their overall expenses by approximately 43%. This forward-thinking and quick action is what has led EPD to experience stable profitability in the past five years.

These efficiencies can be seen in the EBITDA Margin. From 2011 to 2014 the EBITDA Margin was relatively consistent. However in 2015 there was a 65% increase in the EBITDA Margin. This was from the efficiencies previously stated and although revenues dropped, EBITDA remained constant. This shows that EPD was proactive in the market and will do all that they can to make sure their unitholders don’t feel the economic trials in the future.

Looking at their affinity towards rewarding their unitholders, EPD has been increasing their quarterly cash payout with no indication of slowing down. On the other hand, one downside is that even though their ROI has been 18.398% (on average) they have recently had it fall due to the volatility in the market. Overall though, EPD has a strong sense of how to operate at a profit in this changing environment.

IndustryEnterprise Products Partners LP’s business growth and future profits are highly contingent upon multiple factors. This past year (2015), has shown that the market is shifting and is extremely volatile. This volatility presents

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many challenges to current firms; however, with an adept strategic plan the oil and gas industry is entering a ripe season for consolidations. The next several years will be a growth opportunity for those firms.

Benchmark FirmsIdentificationTo get a comprehensive interpretation of where the market is in relation to Enterprise Products Partners, comparable firms were established. The firms selected have similar characteristics so that there is a good frame of reference for where EPD lies on the MLP scale.

Further analysis was conducted with MergentOnline, ThompsonOne, and Yahoo.Finance. The first criterion is that it must be in the MLP industry. This may sound obvious, however, reviewing some securities showed that they were part of a conglomerate and would not match well with EPD’s structure. The next criterion is that the MLP must have relatively low GP expenses or none at all. The reasoning for this is the Enterprise Products Partners has assimilated its GP-which lowers its overall cost and increases value to the common unitholder. And the third criterion is that the MLP must have some geographic footprint close to EPD.

After reviewing these criteria it was determined that the following 5 MLP’s would be included in the analysis.

MLP (in Thousands) Ticker

EV EBITDA

EV/EBITDA (TTM)

P/DCF (TTM

)Energy Transfer Partners LP

ETP 47,170,000

4,136,000

10.41 5.72

ONEOK Partners LP OKS 17,780,000

1,167,823

12.45 9.09

Plains All American Pipeline

PAA 21,170,000

1,635,000

11.69 7.22

Spectra Energy Corp SE 35,250,000

1,626,000

13.77 9.28

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Kinder Morgan energy Partners

KMI 83,400,000

4,468,000

12.22 7.49

Energy Transfer Partners, LP (ETP)

Energy Transfer Partners, LP engages in natural gas midstream and intrastate transportation and storage businesses in the United States. ETP owns and operates more than 35,000 miles of natural gas lines and its current geographic area is predominantly in the east and south states while being headquartered in Dallas, Texas. ETP is approximately 60% the size of EPD based on enterprise value metrics and has similar characteristics of cash handling and debt management. Its predominant reason for being included as a comparable is due to the similar products and geographic footprint.

ONEOK Partners, LP (OKS)

ONEOK is the smallest of the comparable companies. However its close competition and direct geographic footprint give a good indicator of the market conditions for that area of the country. Throughout the Great Plains of the United States, ONEOK provides gathering, processing, storage, and transportation services for natural gas. One metric that was also attractive is the EV/EBITDA of 12.45. This metric is within the wheelhouse of the industry average so it should serve as a good baseline.

Plains All American Pipeline, LP (PAA)

Plains All American, through its subsidiaries, engages in the transportation, storage, terminalling, and marketing of commodities. These include: crude oil, natural gas liquids, natural gas, and refined products in the US and Canada. Headquartered in Houston, Texas, Plains All American owns and leases over 18,000 miles of pipelines. Plains All American was selected as a comparable company because it has a similar geographic footprint (although they do service parts of Canada in which EPD does not). Plains All American has the lowest EV/EBITDA and I felt that it would round out some of the lower performing MLPs to get a good representation of the market.

Spectra Energy Corp. (SE)

Spectra is also not the giant that Enterprise is, however they have a similar debt structure that keeps them from being over-extended in the financial department. Spectra also has a similar EV/EBITDA that more closely resembles Enterprise Products. Spectra provides services to the midstream

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oil & pipeline industry by transporting natural gas and petroleum products to refining operations.

Kinder Morgan Energy Partners (KMI)

Kinder Morgan operates as an energy infrastructure company in North America. It operates through natural gas pipelines, CO2, terminals, products pipelines, Kinder Morgan Canada, and other segments. Kinder Morgan was included in this valuation to compare to EPD’s size based on enterprise value. At 83B in EV, Kinder Morgan is comparable with EPD’s 77B EV. In addition to this Kinder Morgan is also a well-run company in regard to debt management and cash distributions. They have the potential for acquisition growth such as EPD does.

PerformanceUnanimously the firms in the MLP space have suffered setbacks from the volatility in the market. EPD is no different and sustained a large loss in revenue, but as also stated above they have proven to have a knack for competing with the comparable firms. Their efficiency improvements and cost cutting have made them leaner to continue generating value for unitholders and acquiring growth.

Comparable Companies ValuationIt is important to understand how an MLP generates its cash flow as well as the tax benefits they derive by being and MLP. MLP’s generate cash flow from services relating to or benefiting from natural resources. These cash flows are then distributed to the unitholders in the form of a quarterly cash payment. An MLP also has the benefit of not being taxed at the corporate level- as they are essentially just doing the job so that the individual unitholder can gain the disbursement. The individual unitholder is then taxed at their income level.

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Another aspect of MLP’s is that they are incredibly capital intensive. This means there is a substantial amount of depreciation of these assets. The depreciation affects earnings and so the standard P/E ratio is essentially invalid when pricing MLP’s. For instance, Spectra Energy Corp. has a P/E of over 100 inferring that the stock is grossly overpriced. Because of this issue, we must find a better metric to go by. The first is the EV/EBITDA metric which values the MLP before the depreciation is factored in so it gives a better valuation for comparing companies.

The second metric is the Price to Distributable Cash Flows. Similar to the P/E ratio of other companies, P/DCF gives the price of a common unit and divides that by cash available to be distributed per common unit. What this means is that the cash the MLP has before dispersion and retention is the gauge for how valuable the unit is.

Implied Share Price and Sensitivity Analysis

The trailing twelve months EV/EBITDA from each of the comparable firms provided an average of 12.11. Taking this as the baseline assumed EV/EBITDA, Enterprise Products Partners’ EBITDA was substituted into the equation by multiplying it by 12.11 yielding an Enterprise Value of $58.84B. Removing the net debt and dividing by the outstanding common units provided a baseline valuation of $18.81. To check the baseline case of the valuation each company was removed from the valuation and the price fluctuated between $17.81 and $19.83. This valuation turned out a lower than current share price. However, EPD does have the highest ttm EV/EBITDA metric at 15.86, so this may confirm an overpriced valuation.

As another check to be sure that the valuation is valid the P/DCF will be used. To come to the Distributable cash flows, start with net income for the comparable companies and add accounting related items (such as depreciation) back. Culminate with removing maintenance capital expenditures. After doing this for each firm we are left with the sum of total Distributable cash flow. Divide this Distributable cash flow by the outstanding common unit for each company. This product is the distributable cash flow per common unit. Now simply divide the current price in the market by the Distributable cash flow per common unit arrive at the P/DCF valuation ration.

Having done this with the comparable firms, the average P/DCF was 7.76. Substituting in the $2.77 per common unit into the equation presents a valuation of $21.53. Running a sensitivity analysis to remove one firm

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yielded a range of prices from $20.59 to $23.07. Again this looks as if the current stock is overpriced.

WeaknessesWhile the two metrics above yield lower valuations for EPD they also fall short of explaining more than the base cases of the market. I feel that these metrics while useful should not serve as the sole understanding of an MLP’s valuation.

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Discounted Cash FlowsThe underlying assumptions of a discounted cash flow model are essential for garnering an appropriate target price. Understanding what affects the WACC and the growth potential as well as how a company functions during an economic downturn can assist in making the right assumptions.

The assumptions for EPD are that they can buckle down and create efficiencies and decrease their expenses when the market is not favorable. This technique has yielded an EBITDA that is virtually unchanged from previous years with higher revenues. This mentality has assisted in the assumption that EPD’s EBITDA is going to continue to be constant in the coming years. Additionally EPD is expecting to grow through acquisitions and has 4 large projects coming online in 2016 so a bump in revenue is expected. In years 2-4, 7% expected growth is to allocate for the consolidation opportunities and capital improvement projects referenced in their 10-K. 4% terminal growth was determined to be an appropriate terminal metric as in previous years before the oil volatility, EPD was able to garner and sustain such growth on average.

Reading the investor letters and the 10-K has produced an expected WACC of 6.64% guidance by leadership. Although sensitivity analysis should be run, the base case will be assuming this WACC. Along with the WACC is the impact of some taxes on the MLP. The assumed average tax rate is 2% as they benefit from passing the cash flows through as well as depreciation of assets. Depreciation was grown at a constant 11.343% -as this is the typical growth for their previous three years. As the base case with the 6.64% WACC, 7% growth in yrs 2-4, and a terminal growth of 4%, the valuation yielded a $34.27 price per common unit.

Running sensitivity analysis where the WACC and terminal year’s growth was changed yielded a range of $8.23 and $66.38. To be sure of this range, a sensitivity analysis was run for the EBITDA Multiple for the terminal value and WACC -which yielded a valuation of $17.39 to $40.66. The sensitivity analysis shows that the valuation of $34.27 is a valid price target.

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Precedent Transaction Valuation

While consolidation and acquisitions in the MLP sector is not uncommon, the amount of tangible data available to create a precedent transaction valuation is lacking. However, four such transactions have been identified and they have been selected to provide an appropriate sample of the MLP sector EV/EBITDA multiples. The four that were selected are: Hiland Partners LP (Target) – Kinder Morgan (Acquirer) 1/21/2015, El Paso Pipeline Partners (Target) – Kinder Morgan (Acquirer) 8/10/2014, Oiltanking Partners (Target) – Enterprise Products Partners (Acquirer) 10/1/2014, and The Williams Companies, Inc (Target) – Energy Transfer Equity (Acquirer) 6/22/2015. These were selected due to the acquirers all being either the target company of this valuation or having derived a direct income from one of the firms in this valuation. The average EV/EBITDA multiple between the four transactions was 11.1025 yielding a $23.65 stock valuation for EPD.

Summary

Weighting the three valuations equally and removing the lowest of all the valuations ($18.81) yields a target price of $26.48. At its current trading price of $27.17 (at market close 4/25/2016), I recommend a buy to this security. It is appropriately priced for the market, however price appreciation is not the, “be all end all” in this valuation. A return of 5.63% is still attainable from the cash income from this fairly priced security alone.

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Comparable Companies

EV/EBITDA P/DCF 10.41 5.72

12.45 9.09 11.69 7.22 13.77 9.28 12.22 7.49 60.54 38.80 12.11 7.76 58,844,880,000.00 21.53 38,018,180,000.00 18.81

Excluding: EV/EBITDA P/DCFEnergy Transfer Partners $ 19.83 $ 23.07ONEOK $ 18.60 $ 20.72PLAINS $ 19.06 $ 22.03SPECTRA $ 17.81 $ 20.59KINDER $ 18.74 $ 21.84

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Min $ 17.81 $ 20.59Max $ 19.83 $ 23.07

DCF (Discounted Cash Flows)

Terminal EBITDA Multiple

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Perpetual Growth

Growth

Sensitivity Analysis Growth

WACC - Perpetual growth6.5% 7.0% 7.5% 8.0% 8.5% 9.0%

2% 17.151771 $ 14.25

$ 11.87

$ 9.90

$ 8.23 $ 6.80

3% $ 24.18

$ 19.68

$ 16.18

$ 13.39

$ 11.11 $ 9.21

4% $ 36.84

$ 28.74

$ 22.96

$ 18.63

$ 15.26 $ 12.57

Growth 5% $ 66.38

$ 46.86

$ 35.15

$ 27.36

$ 21.79 $ 17.62

6% $ 214.07

$ 101.22

$ 63.61

$ 44.81

$ 33.54 $ 26.03

7%-$ 229.00 NA

$ 205.88

$ 97.18

$ 60.96 0.6768229

8% -$ -$ -$ NA $ $ 93.33

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81.31 116.21 220.94 198.06

Sensitivity Analysis EV/EBITDA Multiple

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5.5% 6.0% 6.5% 7.0%10 $ 15.04 $ 14.49 $ 13.94 $ 13.4112 $ 19.31 $ 18.66 $ 18.02 $ 17.3914 $ 23.58 $ 22.83 $ 22.09 $ 21.3716 $ 27.85 $ 27.00 $ 26.16 $ 25.3518 $ 32.12 $ 31.17 $ 30.24 $ 29.3320 $ 36.39 $ 35.34 $ 34.31 $ 33.3122 $ 40.66 $ 39.51 $ 38.38 $ 37.29

Precedent Transaction

EPD Valuation EV/EBITDAMean

EV/EBITDA Mean

$ 4,305,700,000.00 47,804,034,250.00 $ 23.65

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