2016 ANNUAL LETTER TO INVESTORS

Enterprise posted solid financial results in 2016 that were driven by record liquefied petroleum gas (“LPG”) export volumes of 426 thousand barrels per day ("MBPD") and record NGL pipeline volumes of 3.0 million barrels per day (“BPD”).

The partnership also loaded the first cargoes of ethane for export in the third quarter from its new facility at Morgan’s Point on the Houston Ship Channel. We also added propylene export capabilities at our Houston Ship Channel facility and increased our loadings of propylene for export in 2016. Enterprise remains the global leader in LPG exports as global demand for abundant U.S. LPGs continues to grow. We are proud of how Enterprise performed in 2016 despite the challenging environment for the energy industry, and we are optimistic that the industry has weathered the harshest part of the cycle.

We expanded our asset base in 2016 by completing construction of
$2.2 billion of capital growth projects. These major projects included:

  • Two new cryogenic natural gas processing facilities in the Delaware Basin that added 350 million cubic feet per day (“MMcf/d”) of processing capacity and approximately 50 MBPD of NGL extraction capability. These plants are supported by long-term, fee-based contracts from major producers; and, 

  • An ethane export terminal on the Houston Ship Channel. The 240 MBPD terminal is the largest of its kind and is sourced from Enterprise’s NGL fractionation and storage complex at Mont Belvieu. The driving force behind development of the terminal is demand from international petrochemical facilities seeking diversification and lower cost feedstock supplies provided by abundant U.S. ethane from shale plays.

These projects began providing new sources of fee-based cash flow in 2016, and the partnership expects to benefit from a full year of operations from these facilities in 2017.

STRONG FINANCIAL PERFORMANCE

For 2016, Enterprise had operating income and cash flow provided from operations of $3.6 billion and $4.1 billion, respectively. Total gross operating margin was $5.2 billion in 2016 compared to a record
$5.3 billion in 2015, and distributable cash flow (“DCF”) was $4.1 billion in 2016 compared to $5.6 billion in 2015. DCF for 2015 included
$1.6 billion of cash proceeds from the sale of the partnership’s offshore assets. Total gross operating margin and DCF are non-generally accepted accounting principle financial measures that are defined and reconciled later in this Letter to Investors.

Cash distributions declared with respect to 2016 increased 5.2 percent to $1.61 per unit compared to 2015. We have increased our quarterly cash distribution for 50 consecutive quarters, the longest period of any publicly traded master limited partnership (“MLP”). Since our initial public offering (“IPO”) in 1998, we have increased our quarterly cash distribution rate 59 times at a 7 percent compounded annual growth rate.

DCF for 2016 provided 1.2 times coverage of cash distributions paid with respect to 2016. In total, Enterprise retained more than $700 million of DCF in 2016, and over $11 billion or 32 percent of its DCF since its IPO. By retaining DCF, we enhance our financial flexibility, provide capital for growth projects and provide a margin of safety for our investors.

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CURRENT MACRO ENERGY OUTLOOK

As we begin 2017, the energy industry has improved from last year.
The forward curve for West Texas Intermediate (“WTI”) crude oil prices has broken through the $50 per barrel range and has significantly recovered after reaching a low of $26 per barrel in February 2016. Due to a very warm winter in 2015-2016, natural gas prices also experienced significant weakness moving from an average of approximately $4.43 per million British thermal units (“MMBTU”) in 2014 to as low as $1.64 in March 2016. Natural gas prices have rebounded to approximately $3.00 per MMBTU largely supported by increased exports, including growing demand for U.S. LNG production of natural gas and NGLs has been more stable and generally less market sensitive. While producers are still selective about capital allocation, technology continues to drive improvements in drilling economics. With a much improved commodity price environment, drilling rig counts have also improved considerably. The Permian Basin continues to be the hottest play in the U.S. representing approximately 40 percent of domestic drilling activities. Other basins including the Eagle Ford, Haynesville and the Piceance have also seen significant improvements in rig counts and completions. With higher commodity prices, producers have begun rationalizing properties in their non-core basins, and the new owners are expected to drill at a rapid pace as “the need for speed” to drill and produce improves their returns.

The midstream industry broadly experienced declines in crude oil, natural gas and NGL production in many supply basins in 2016, which has resulted in underutilized midstream assets in certain regions. We expect this will lead to operational leverage for existing assets when volumes recover as a result of increased drilling activity. Enterprise is well-positioned to benefit from these improving conditions with its footprint of assets in the Permian, Barnett, Haynesville and Piceance basins.

Lower commodity prices are driving demand growth by consumers of energy. The U.S. petrochemical industry consumed a record 1.6 MMBPD of NGLs in 2016. The U.S. exported a record 877 MBPD of LPGs and
1.4 million BPD of net refined product exports. The U.S. also began exporting LNG in 2016, and increased natural gas exports to Mexico via pipeline. In 2016, the U.S. began exporting more natural gas than it imported for the first time in history.

In late November 2016, OPEC formally agreed to production cuts, starting January 1, 2017, to be in effect until at least the next OPEC meeting in May 2017. Certain non-OPEC producers, including Russia, also agreed to participate in the production cuts. While the history of OPEC production quotas being honored has been poor, thus far it appears that compliance with the production quotas has been high.

Many industry experts believe that with stronger demand resulting from lower commodity prices worldwide in the face of supply disruptions, global markets are close to being balanced. With the production cuts and positive supply and demand trends, the forward markets and many energy analysts forecast that WTI will trade between $50 and $60 per barrel between now and 2020.

There is a growing appetite for low-cost U.S. petrochemical products, which are supported by plentiful U.S. natural gas supplies, NGL feedstocks and labor. Due to this cost advantage, domestic petrochemical companies have maximized their consumption of NGLs and are investing significant capital to construct new world-scale ethylene plants along the Gulf Coast that will utilize ethane as the primary feedstock. U.S. ethylene production capacity is expected to increase by approximately 45 percent over the next three years. This is expected to result in a 770 MBPD increase in ethane demand.

Enterprise is connected to every ethylene cracker in the U.S. and recently completed its Aegis pipeline, an ethane supply pipeline that extends from the Mississippi River in Louisiana to Mont Belvieu. It also connects to another ethane pipeline at Mont Belvieu that extends to Corpus Christi, Texas serving petrochemicals along the Gulf Coast. This new header pipeline is expected to connect to most of the new ethylene crackers being built along the Gulf Coast. Through these facilities Enterprise provides supply diversification and reliability.

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CAPITAL INVESTMENTS

Enterprise has a history of successful execution on $62 billion of organic growth projects and acquisitions since its IPO in 1998. These projects have broadened and extended our integrated midstream system. The partnership currently has $7.1 billion of new capital growth projects under construction to be completed through 2019 that are supported by long-term customer commitments. These include:

  • The propane dehydrogenation (“PDH”) facility, expected to begin operations in mid-2017. The facility will produce up to 1.65 billion pounds of polymer-grade propylene and consume 35 MBPD of propane. It is fully subscribed under fee-based contracts with investment-grade companies averaging 15 years in length;

  • The Midland-to-ECHO crude oil pipeline system, which is expected to be completed in fourth quarter 2017, ramping up through early 2018. This 416-mile, 24-inch pipeline will originate at Enterprise’s Midland terminal, extend to its storage terminal in Sealy, Texas, and connect to the partnership’s ECHO terminal and distribution system in south Houston.
    Supported by long-term contracts, the Midland-to-Sealy segment will have capacity to transport up to 450 MBPD of different grades of crude oil and condensate, and will provide producers a direct route to the Gulf Coast refining market and Houston export facilities;

  • A third natural gas cryogenic processing plant in the Delaware Basin region. Our Orla plant will have the capacity to process 300 MMcf/d of natural gas and produce up to 40 MBPD of NGLs. Upon completion of this facility, Enterprise will have 800 MMcf/d of gas processing capacity and the capacity to produce up to 100 MBPD; and

  • A recently announced isobutane dehydrogenation (“iBDH”) unit at Mont Belvieu. It will have the capacity to produce 937 million pounds per year of isobutylene. The project, which is supported by long-term contracts with investment-grade customers, is expected to be completed in the fourth quarter of 2019. The facility will allow full utilization of our existing octane enhancement and high purity isobutylene facilities.

We believe the cash flow generated by these investments will support growth in cash distributions to our partners.

SAFETY AND ENVIRONMENTAL AWARENESS

As we grow, we continue to emphasize the importance of safety and protecting our environment. Safety is our highest priority. We believe safe and reliable operations are important in assuring the well-being of our employees, contractors, neighbors and assets.

Protection of the environment is also a key focus for Enterprise. Good environmental stewardship is not just important, it is a way of doing business at Enterprise.

CLOSING

We would like to highlight the continued strong support of our general partner and its affiliates, including privately held Enterprise Products Company (“EPCO”). In 2010, EPCO took actions that facilitated the simplification of our structure and eliminated our general partner incentive distribution rights in a non-taxable transaction to our limited partners. Since 2010, EPCO has continued to support Enterprise by investing $800 million to purchase new Enterprise common units to reinvest in the growth of the partnership and enhance our financial flexibility.

Finally, we would like to recognize our employees for their hard work and dedication in managing and growing our partnership. We would not be successful without their tireless efforts. We also want to thank our debt and equity investors for their continued support. We look forward to an improved outlook for 2017 and the growth opportunities that this will make available to our partnership.

contains signatures of Chairman of Board, CEO, Vice Chariman Board and President