TEPPCO Partners, L.P.

NYSE:  TPP

 

 

            TEPPCO Partners, L.P. (“TEPPCO”) does business in three industry segments through three operating subsidiaries:  transportation of refined products, liquefied petroleum gases (LPGs), and petrochemicals, primarily through its subsidiary TE Products Pipeline Company, L.P.; transportation and marketing of crude oil and natural gas liquids (NGLs), conducted through its subsidiary TCTM, L.P.; and gathering of natural gas through its subsidiary TEPPCO Midstream Companies, L.P.  Texas Eastern Products Pipeline Company, LLC, is the general partner of the partnership and is an indirect wholly-owned subsidiary of Duke Energy Field Services, LLC (DEFS).

 

Transportation of Refined Products, LPGs and Chemicals (Downstream Segment)

 

TEPPCO’s refined products and LPGs segment, one of the largest pipeline common carriers of refined petroleum products and LPGs in the United States, conducts business and owns properties located in 14 states.  Operations consist of interstate transportation, storage and terminaling of petroleum products; interstate transportation of petrochemicals; short-haul shuttle transportation of LPGs at the Mont Belvieu, Texas complex; intrastate transportation of petrochemicals, and other ancillary services.

 

TEPPCO, through TE Products, owns and operates an approximately 4,600-mile pipeline system extending from southeast Texas through the central and midwestern United States to the northeastern United States.  The pipeline system includes delivery terminals for outloading product to other pipelines, tank trucks, rail cars or barges, as well as substantial storage capacity at Mont Belvieu, Texas, the largest LPGs storage complex in the United States, and at other locations.  It also owns two marine receiving terminals, one near Beaumont, Texas, and the other at Providence, Rhode Island.

 

The pipeline system transports refined petroleum products from the upper Texas Gulf Coast, eastern Texas and southern Arkansas to the Central and Midwest regions of the United States with deliveries in Texas, Louisiana, Arkansas, Missouri, Illinois, Kentucky, Indiana and Ohio.  At these points, refined petroleum products are delivered to partnership-owned terminals, connecting pipelines and customer-owned terminals.

 

LPGs are transported from the upper Texas Gulf Coast to the Chicago, Illinois; Lima, Ohio; Selkirk, New York; and Philadelphia, Pennsylvania, areas.  The pipeline system east of Todhunter, Ohio, is dedicated solely to LPGs transportation and storage services and is the only pipeline that transports LPGs to the Northeast.

 

            The pipeline system includes 27 storage facilities with an aggregate storage capacity of 16 million barrels of refined petroleum products and 6 million barrels of LPG storage, including storage capacity leased to outside parties.  The system makes deliveries to customers at 56 locations including 19 owned truck racks, rail car facilities and marine facilities. Deliveries to other pipelines occur at various facilities owned by TE Products or by third parties.

 

            In August 2000 TE Products entered into agreements with Panhandle Eastern Pipeline Company and Marathon Ashland Petroleum LLC to form Centennial Pipeline, LLC, a joint venture which owns and operates an interstate refined petroleum products pipeline extending from the upper Texas Gulf Coast to Illinois. Each participant originally owned a one-third interest in Centennial; since then TE Products and Marathon have bought up Panhandle’s share and each now owns a 50% interest.  Centennial constructed a 74-mile, 24-inch diameter pipeline connecting TE Products’ facility in Beaumont, Texas, with an existing 720-mile, 26-inch diameter pipeline extending from Longville, Louisiana, to Bourbon, Illinois.  The Centennial pipeline intersects TE Products’ existing mainline pipeline near Creal Springs, Illinois, where Centennial has constructed a new two million barrel refined petroleum products storage terminal.

         

            The Downstream Segment also includes the operations of the northern portion of the Dean Pipeline. Beginning in January 2003, the northern portion of the Dean Pipeline was converted to transport RGP from Mont Belvieu to Point Comfort. The northern portion of the Dean Pipeline consists of 138 miles of pipeline from Mont Belvieu to Point Comfort.

 

            TCTM owns a 50% ownership interest in the Seaway Crude Pipeline Company (“Seaway”) in a partnership with Phillips Petroleum. The 30-inch diameter, 500-mile pipeline, which TCTM operates, transports crude oil from the U.S. Gulf Coast to Cushing, a central crude distribution point for the central United States and a delivery point for the New York Mercantile Exchange

 

            Product deliveries for the Downstream Segment for 2003 and 2002were as follows, in millions of barrels (MMBbls):

 

 

2003

2002

 

 

 

Refined Products Mainline Transportation

 

 

   Gasoline

 89.8

 81.9

   Jet Fuels

 26.4

 25.3

   Distillates

 37.9

31.0

            Subtotal

154.1

138.2

LPGs Mainline Transportation

 

 

  Propane

 34.5

32.9

  Butanes

  8.0

 7.6

            Subtotal

  42.5

 40.5

            Total Mainline Transportation

196.6

178.7

Petrochemical Transportation

   3.4

---

            Total Product Deliveries

200.0

178.7

 

Transportation and Marketing of Crude Oil and NGL (Upstream Segment)

 

            Through TCTM and its wholly-owned subsidiaries, and its 50% investment in Seaway Crude Pipeline Company, TEPPCO’s Upstream Segment gathers, transports, markets and stores crude oil, and distributes lubrication oils and specialty chemicals, principally in Oklahoma, Texas, New Mexico and the Rocky Mountain region.  The Upstream Segment uses its asset base to aggregate crude oil and provide transportation and specialized services to its regional customers.  It purchases crude oil from various producers and operators at the wellhead and makes bulk purchases of crude oil at pipeline and terminal facilities. The crude oil is then sold to refiners and other customers. The Upstream Segment transports crude oil through equity owned pipelines, its trucking operations and third party pipelines.

 

Teppco operates crude oil gathering and trunkline pipelines principally in Oklahoma and Texas, NGL trunkline pipelines in South and East Texas, owns undivided joint interests in crude trunkline pipelines in Texas and Oklahoma.  It also operates the Seaway Crude Pipeline System, a 500-mile pipeline with 3.2 million barrels of storage in which it has a 50% general partnership interest, from Freeport, Texas to Cushing, Oklahoma. 

 

The crude oil pipelines include two major systems and various smaller systems:

 

Ø        The Red River System, located on the Texas-Oklahoma border, is the larger system, with 1,690 miles of pipeline and 1.5 million barrels of storage. The majority of this pipeline's crude oil is delivered to Cushing, Oklahoma via connecting pipelines or to two local refineries. 

Ø        The South Texas System, located west of Houston, consists of 900 miles of pipeline and 780,000 barrels of storage.  The majority of the crude oil on this system is delivered on a tariff basis to Houston area refineries. 

 

Ø        The West Texas Trunk System consists of 250 miles of smaller diameter receipt and delivery pipelines connecting West Texas and Southeast New Mexico to TCTM’s Midland, Texas terminal. 

Ø        TEPPCO also owns a 13% joint ownership interest in the Basin system, a 416-mile pipeline between the Permian Basin and Cushing Oklahoma. 

Ø        Other crude oil assets, located primarily in Texas and Louisiana, consist of 310 miles of pipeline and 295,000 barrels of storage capacity.

 

Natural Gas Gathering, Transportation of NGLs and Fractionation of NGLs (Midstream Segment)

 

            The Midstream segment began operation in September 2001 when TEPPCO, through subsidiaries, acquired all of the partnership interests of Jonah Gas Gathering Company from Alberta Energy Company.  TEPPCO’s natural gas gathering operations are conducted through Jonah as well as the Val Verde Gas Gathering Company.  NGL transportation is conducted through TEPPCO Midstream and its subsidiaries, and NGL fractionation through TEPPCO Colorado.  Volume for the Midstream Segment for the most recent two years was as follows:

 

 

2003

2002

 

 

 

Gathering – Natural Gas (billion cubic feet “Bcf”))

461.2

340.7

Transportation – NGLs (million barrels)

  57.9

  54.0

Fractionation – NGLS (million barrels)

    4.1

   4.1

 

Natural Gas Gathering

 

TEPPCO has completed three expansions of the Jonah natural gas gathering system since the acquisition.  The first two, in 2002 nearly doubled the system’s capacity from approximately 450 million cubic feet per day (“MMcf/day”) to approximately 880 MMcf/day. The third, which was substantially completed in the fourth quarter of 2003, increased system capacity to 1,180 MMcf/day.

 

The Jonah System currently consists of approximately 500 miles of pipelines ranging in size from three to 24 inches in diameter, three compressor stations with an aggregate of approximately 44,000 horsepower and related metering facilities.  Gas gathered on the Jonah System is collected from approximately 500 producing wells in the Green River Basin in southwestern Wyoming, which is one of the most prolific natural gas basins in the United States.  The system also includes two processing facilities that extract condensate prior to delivery of natural gas to DEFS, Northwest, Kern River and Questar.  Gas is delivered to gas processing facilities owned by others.  From these processing facilities, the natural gas is delivered to several interstate pipeline systems located in the region for transportation to end-use markets, throughout the Midwest, the West Coast and the Rocky Mountain regions.  Interstate pipelines in the region include the Overland Trail Transmission system, Kern River, Northwest, Colorado Interstate Gas and Questar.

 

            The Val Verde system consists of approximately 400 miles of pipeline ranging in size from four inches to 36 inches in diameter, 14 compressor stations operating over 93,000 horsepower of compression and a large amine treating facility for the removal of carbon dioxide. The system has a pipeline capacity of approximately one billion cubic feet of gas per day. The Val Verde system gathers coal bed methane (CBM) from the Fruitland Coal Formation of the San Juan Basin in New Mexico and Colorado, a long-term source of natural gas supply in North America and one of the most prolific sources of CBMs. The system is one of the largest CBM gathering and treating facilities in the United States, gathering CBM from more than 500 separate wells throughout northern New Mexico and southern Colorado, and provides gathering and treating services pursuant to 60 long-term contracts with approximately 40 different natural gas producers in the San Juan Basin. Gas transported on the Val Verde system is delivered to several interstate pipeline systems serving the western United States, as well as local New Mexico markets.

 

NGL Transportation and Fractionation

 

The Midstream Segment’s NGL pipelines are located along the Texas Gulf Coast, East Texas, and in the area from southeastern New Mexico and West Texas to Mount Belvieu.    They are all wholly owned and operated by either by TEPPCO subsidiaries or under a contractual agreement with DEFS.   The pipelines include:

 

Pipeline

Capacity (barrels/day)

 

Description

Chaparral

135,000

 

845 miles of pipeline – West Texas and New Mexico to Mont Belvieu, Texas

Quanah

22,000

 

180 miles of pipeline – Sutton County, Texas to the Chaparral Pipeline near Midland, Texas

Panola

43,000

 

189 miles of pipeline – Carthage, Texas to Mont Belvieu, Texas

San Jacinto

12,000

 

34 miles of pipeline – Carthage, Texas to Longview, Texas

The southern portion of the Dean Pipeline

10,000

 

155 miles of pipeline – South Texas to Point Comfort, Texas

Wilcox

7,500

 

103 miles of pipeline – Southeast Texas

           

TEPPCO Colorado has two NGL fractionation facilities which separate NGLs into individual components which is operated under a fractionation agreement with DEFS through 2018, under which TEPPCO Colorado receives a variable fee for all fractionated volumes delivered to DEFS. Revenues recognized from the fractionation facilities totaled $7.4 million for each of 2003, 2002 and 2001. Under an operation and maintenance agreement, DEFS also operates and maintains the fractionation facilities on behalf of TEPPCO Colorado, for which TEPPCO Colorado pays DEFS a set volumetric rate for all fractionated volumes delivered to DEFS. Expenses related to the Operation and Maintenance Agreement totaled $0.9 million for each of 2003, 2002 and 2001.

 

            TEPPCO’s business strategy is to expand and improve service in its current markets, maintain the integrity of its pipeline systems, and pursue growth initiatives that are balanced between internal projects and acquisitions.  TEPPCO intends to leverage the advantages inherent in its existing pipeline systems to maintain its status as a preferred provider in its market areas.  It also intends to grow by acquiring assets, from both third parties and affiliates, which complement existing businesses or to establish new core businesses. TEPPCO routinely evaluates opportunities to acquire assets and businesses that will complement existing operations with a view to increasing earnings and cash available for distribution to unitholders. Additional acquisitions may be funded with cash flow from operations, borrowings under existing credit facilities, the issuance of debt in the capital markets, the sale of additional units, or any combination thereof.

.

            TEPPCO Partners, L.P. trades on the New York Stock Exchange under the symbol TPP.  For more information, visit TEPPCO’s web site at http://www.teppco.com/ or contact Brenda Peters, Director of Investor Relations, at 713-759-3954, [email protected]

 

Financial Information from 2003 10-K

(in thousands, except per unit amounts)

 

 

2003

2002

Market value*

$2,103,613

$1,355,892

Current assets

$452,818

$358,347

Net property, plant and equipment

$1,619,163

$1,587,824

Total assets

$2,940,992

$2,768,422

Current liabilities

$475,591

$364,563

Long-term debt

$1,339,650

$1,377,692

Partnership capital

$1,109,321

$891,842

Revenues

$4,255,832

$3,242,163

Operating income

$192,408

$170,247

Net income

$125,769

$117,862

Net income/unit

$1.52

$1.79

Distribution / unit

$2.50

$2.35

High unit price

$41.15

$33.25

Low unit price

$28.05

$23.90

*As of June 30, 2003 and June 30, 2002

 

 

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