Education
About Us
Working with TipRanks
Follow Us
EnLink Midstream LLC (ENLC)
NYSE:ENLC
Risk Overview Q3, 2024
Risk Distribution
42% Finance & Corporate
23% Legal & Regulatory
16% Production
15% Ability to Sell
3% Macro & Political
2% Tech & Innovation
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.
Risk Change Over Time
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
EnLink Midstream Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.
Risk Highlights Q3, 2024
Main Risk Category
Finance & Corporate
With 26 Risks
Finance & Corporate
With 26 Risks
Number of Disclosed Risks
62
+1
From last reportS&P 500 Average: 31
62
+1
From last reportS&P 500 Average: 31
Recent Changes
1Risks added
0Risks removed
2Risks changed
Since Sep 2024
1Risks added
0Risks removed
2Risks changed
Since Sep 2024
Number of Risk Changed
2
+2
From last reportS&P 500 Average: 3
2
+2
From last reportS&P 500 Average: 3
See the risk highlights of EnLink Midstream in the last period.
Risk Word Cloud
The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.
Risk Factors Full Breakdown - Total Risks 62
Finance & Corporate
Total Risks: 26/62 (42%)Above Sector Average
Share Price & Shareholder Rights14 | 22.6%
Share Price & Shareholder Rights - Risk 1
ONEOK owns 43.8% of ENLC's outstanding common units as of October 15, 2024 and controls the Managing Member, which has sole responsibility for conducting our business and managing our operations. Our Managing Member and its affiliates, including ONEOK, have conflicts of interest with us and limited duties to us and may favor their own interests to your detriment.Changed
Share Price & Shareholder Rights - Risk 2
The price of ENLC common units may fluctuate significantly, which could cause our unitholders to lose all or part of their investment.As of February 14, 2024, approximately 53.9% of ENLC common units were held by public unitholders. The lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of ENLC common units, and limit the number of investors who are able to buy ENLC common units. The market price of ENLC common units may be influenced by many factors, some of which are beyond our control, including:
- the quarterly distributions paid by us with respect to ENLC common units;- our quarterly or annual earnings, or those of other companies in our industry;- the loss of a key customer;- events affecting GIP;- announcements by us or our competitors of significant contracts or acquisitions;- changes in accounting standards, policies, guidance, interpretations, or principles;- general economic conditions or the impact of any future pandemic;- the failure of securities analysts to cover ENLC common units or changes in financial estimates by analysts;- future sales of ENLC common units; and - other factors described in these "Risk Factors."
Share Price & Shareholder Rights - Risk 3
Unitholders may have liability to repay distributions that were wrongfully distributed to them.Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under the DLLCA, a limited liability company may not make a distribution to a member if, after the distribution, all liabilities of the limited liability company, other than liabilities to members on account of their membership interests and liabilities for which the recourse of creditors is limited to specific property of the company, would exceed the fair value of the assets of the limited liability company. For the purpose of determining the fair value of the assets of a limited liability company, the DLLCA provides that the fair value of property subject to liability for which recourse of creditors is limited shall be included in the assets of the limited liability company only to the extent that the fair value of that property exceeds the non-recourse liability. The DLLCA provides that a member who receives a distribution and knew at the time of the distribution that the distribution was in violation of the DLLCA will be liable to the limited liability company for the amount of the distribution for three years following the date of the distribution.
Share Price & Shareholder Rights - Risk 4
Our Managing Member has a call right that may require unitholders to sell their ENLC common units at an undesirable time or price.If at any time the Managing Member and its affiliates own more than 90% of ENLC's common units, the Managing Member will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of ENLC common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of ENLC common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by the Managing Member or any of its affiliates for ENLC common units during the 90-day period preceding the date such notice is first mailed. As a result, unitholders may be required to sell their ENLC common units at an undesirable time or price and may not receive any return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our Managing Member is not obligated to obtain a fairness opinion regarding the value of ENLC common units to be repurchased by it upon exercise of the call right. There is no restriction in our operating agreement that prevents the Managing Member from issuing additional ENLC common units and exercising its call right. If the Managing Member exercised its call right, the effect would be to take us private. As of February 14, 2024, GIP owned an aggregate of approximately 46.1% of outstanding ENLC common units.
Share Price & Shareholder Rights - Risk 5
GIP may sell ENLC common units in the public markets or otherwise, which sales could have an adverse impact on the trading price of our common units.As of February 14, 2024, GIP held 208,765,211 ENLC common units. Additionally, we have agreed to provide GIP with certain registration rights with respect to the ENLC common units held by it. The sale of these units could have a material adverse impact on the price of ENLC common units or on any trading market that may develop. During 2022 and 2023, we entered into agreements with GIP pursuant to which we agreed to repurchase, on a quarterly basis, a pro rata portion of the ENLC common units held by GIP, based upon the number of common units purchased by us during the applicable quarter from public unitholders under our common unit repurchase program. Under these agreements, the number of ENLC common units held by GIP that we repurchased in any quarter is calculated such that GIP's then-existing economic ownership percentage of our outstanding common units is maintained after our repurchases of common units from public unitholders are taken into account, and the per unit price we paid to GIP is the average per unit price paid by us for the common units repurchased from public unitholders, less broker commissions, which are not paid with respect to the GIP units. On January 16, 2024, we entered into a repurchase agreement with GIP for 2024 on terms substantially similar to those agreements entered into in respect of 2022 and 2023. See "Item 8. Financial Statements and Supplementary Data-Note 5 and Note 10" for more information regarding repurchases of ENLC common units held by GIP.
Share Price & Shareholder Rights - Risk 6
The holders of ENLK's Series B Preferred Units may exchange such units into ENLC common units, which could cause dilution to our common unitholders. Such holders may sell such common units in the public markets or otherwise, which sales could have a material adverse impact on the trading price of our common units.The exchange of ENLK's Series B Preferred Units into common units, which the holders of the Series B Preferred Units may elect to cause at any time, may cause substantial dilution to the holders of the common units. The Series B Preferred Units are exchangeable into a number of common units equal to the number of Series B Preferred Units being exchanged multiplied by 1.15 (subject to certain adjustments). As of February 14, 2024, on an as-exchanged basis, the Series B Preferred Units represented approximately 12.2% of the membership interests of ENLC. We have provided the holders of the Series B Preferred Units with certain registration rights with respect to the ENLC common units to be issued in exchange for the Series B Preferred Units, and we have filed a registration statement on Form S-3 to cover registered sales of ENLC common units by such holders. The sale of these common units could have a material adverse impact on the price of ENLC common units.
Share Price & Shareholder Rights - Risk 7
We may issue additional units, including units that are senior to ENLC common units, without the approval of the holders of common units, which would dilute existing ownership interests.Our operating agreement does not limit the number of additional membership interests that we may issue at any time without the approval of our unitholders, except that our operating agreement restricts our ability to issue any membership interests senior to or on parity with the Series B Preferred Units with respect to distributions on such membership interests or upon liquidation. The issuance by us of additional ENLC common units or other equity securities of equal or senior rank will have the following effects:
- each unitholder's proportionate ownership interest in us will decrease;- the amount of cash available for distribution on each unit may decrease;- the relative voting strength of each previously outstanding unit may be diminished; and - the market price of ENLC common units may decline.
Share Price & Shareholder Rights - Risk 8
The control of the Managing Member may be transferred to a third party without unitholder consent.Our Managing Member may transfer its managing member interest in us to a third party in a merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, our operating agreement does not restrict the ability of GIP to transfer all or a portion of the ownership interest in the Managing Member to a third party. If the managing member interest were transferred, the new owner of the Managing Member would then be in a position to replace the board of directors and officers of the Managing Member with its own choices and thereby exert significant control over the decisions made by such board of directors and officers. This effectively permits a "change in control" of the Managing Member without the vote or consent of the unitholders. On July 18, 2018, certain subsidiaries of Devon sold their equity interests in the Managing Member to affiliates of GIP without a vote or consent of the ENLC unitholders. For more information on this transaction, see "Item 8. Financial Statements and Supplementary Data-Note 1" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Commission on February 16, 2022, and available here.
Share Price & Shareholder Rights - Risk 9
Even if our unitholders are dissatisfied, they cannot initially remove the Managing Member without its consent.ENLC's unitholders are unable to remove the Managing Member without its consent because the Managing Member and its affiliates own sufficient units to be able to prevent its removal. The vote of the holders of at least 66 2/3% of all outstanding ENLC common units voting together as a single class is required to remove the Managing Member. As of February 14, 2024, the Managing Member and its affiliates owned approximately 46.1% of the outstanding ENLC common units.
Share Price & Shareholder Rights - Risk 10
Holders of ENLC common units have limited voting rights and are not entitled to elect the Managing Member or the Board, which could reduce the price at which ENLC common units trade.Unlike the holders of common stock in a corporation, ENLC unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management's decisions regarding our business. Unitholders do not have the right to elect the Managing Member or the Board on an annual or other continuing basis. The Board, including its independent directors, is chosen by the sole member of the Managing Member. Furthermore, if unitholders are dissatisfied with the performance of the Managing Member, they will have very limited ability to remove the Managing Member. Our operating agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders' ability to influence the manner or direction of management. As a result of these limitations, the price at which ENLC common units trade could be diminished because of the absence or reduction of a takeover premium in the trading price.
Share Price & Shareholder Rights - Risk 11
Our operating agreement restricts the voting rights of unitholders owning 20% or more of ENLC's common units.Unitholders' voting rights are further restricted by our operating agreement, which provides that any units held by a person that owns 20% or more of any class of units, other than the Managing Member, its affiliates, their transferees and persons who acquired such units with the prior approval of the Board, cannot vote on any matter.
Share Price & Shareholder Rights - Risk 12
Our operating agreement restricts the remedies available to holders of our membership interests for actions taken by the Managing Member that might otherwise constitute breaches of fiduciary duty.Our operating agreement contains provisions that restrict the remedies available to holders of ENLC common units for actions taken by the Managing Member that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our operating agreement provides that:
- whenever the Managing Member makes a determination or takes, or declines to take, any other action in its capacity as the Managing Member, the Managing Member is required to make such determination, or take or decline to take such other action, in good faith, and will not be subject to any other or different standard imposed by Delaware law, or any other law, rule, or regulation, or at equity;- the Managing Member will not have any liability to us or our unitholders for decisions made in its capacity as a managing member so long as it acted in good faith, meaning that it subjectively believed that the decision was in, or not opposed to, our best interests;- our operating agreement is governed by Delaware law and any claims, suits, actions, or proceedings:
- arising out of or relating in any way to our operating agreement (including any claims, suits, or actions to interpret, apply, or enforce the provisions of our operating agreement or the duties, obligations, or liabilities among members or of members to us, or the rights or powers of, or restrictions on, the members or the company);- brought in a derivative manner on our behalf;- asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees or the Managing Member, or owed by the Managing Member, to us or our members;- asserting a claim arising pursuant to any provision of the Delaware Limited Liability Company Act ("DLLCA"); or - asserting a claim governed by the internal affairs doctrine;must be exclusively brought in the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, any other court located in the State of Delaware with subject matter jurisdiction), regardless of whether such claims, suits, actions, or proceedings sound in contract, tort, fraud, or otherwise, are based on common law, statutory, equitable, legal, or other grounds, or are derivative or direct claims. By purchasing ENLC common units, a member is irrevocably consenting to these limitations and provisions regarding claims, suits, actions, or proceedings and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or such other Delaware courts) in connection with any such claims, suits, actions, or proceedings;- the Managing Member and its officers and directors will not be liable for monetary damages to us or our members resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the Managing Member or its officers or directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct, or, in the case of a criminal matter, acted with knowledge that the conduct was unlawful; and - the Managing Member will not be in breach of its obligations under our operating agreement or its duties to us or our members if a transaction with an affiliate or the resolution of a conflict of interest is:
- approved by the conflicts committee of the Board, although the Managing Member is not obligated to seek such approval; or - approved by the vote of a majority of the outstanding ENLC common units, excluding any ENLC common units owned by the Managing Member and its affiliates, although the Managing Member is not obligated to seek such approval.
Our Managing Member will not have any liability to us or our unitholders for decisions whether or not to seek the approval of the conflicts committee of the Board or holders of a majority of ENLC common units, excluding any ENLC common units owned by the Managing Member and its affiliates. If an affiliate transaction or the resolution of a conflict of interest is not approved by the conflicts committee or holders of ENLC common units, then it will be presumed that, in making its decision, taking any action or failing to act, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any member or us, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
Share Price & Shareholder Rights - Risk 13
Our operating agreement replaces the fiduciary duties otherwise owed to our unitholders by the Managing Member with contractual standards governing its duties.Our operating agreement contains provisions that eliminate and replace the fiduciary standards that the Managing Member would otherwise be held to by state fiduciary duty law. For example, our operating agreement permits the Managing Member to make a number of decisions, in its individual capacity, as opposed to in its capacity as the Managing Member, or otherwise, free of fiduciary duties to us and our unitholders. This entitles the Managing Member to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates, or our members. Examples of decisions that the Managing Member may make in its individual capacity include:
- how to allocate business opportunities among us and its other affiliates;- whether to exercise its call right;- how to exercise its voting rights with respect to any membership interests it owns;- whether or not to consent to any merger or consolidation of us or any amendment to our operating agreement; and - whether or not to seek the approval of the conflicts committee of the Board, or the unitholders, or neither, of any conflicted transaction.
By purchasing any ENLC common units, a unitholder is treated as having consented to the provisions in our operating agreement, including the provisions discussed above.
Share Price & Shareholder Rights - Risk 14
We are a "controlled company" within the meaning of NYSE rules and, as a result, we qualify for, and rely on, exemptions from some of the listing requirements with respect to independent directors.Because GIP controls more than 50% of the voting power for the election of directors of the Managing Member, we are a controlled company within the meaning of NYSE rules, which exempt controlled companies from the following corporate governance requirements:
- the requirement that a majority of the board consist of independent directors;- the requirement that the board of directors have a nominating or corporate governance committee, composed entirely of independent directors, that is responsible for identifying individuals qualified to become board members, consistent with criteria approved by the board, selection of board nominees for the next annual meeting of equity holders, development of corporate governance guidelines, and oversight of the evaluation of the board and management;- the requirement that we have a compensation committee of the board, composed entirely of independent directors, that is responsible for reviewing and approving corporate goals and objectives relevant to chief executive officer compensation, evaluation of the chief executive officer's performance in light of the goals and objectives, determination and approval of the chief executive officer's compensation, making recommendations to the board with respect to compensation of other executive officers and incentive compensation and equity-based plans that are subject to board approval and producing a report on executive compensation to be included in an annual proxy statement or Form 10-K filed with the Commission;- the requirement that we conduct an annual performance evaluation of the nominating, corporate governance and compensation committees; and - the requirement that we have written charters for the nominating, corporate governance and compensation committees addressing the committees' responsibilities and annual performance evaluations.
For so long as we remain a controlled company, we will not be required to have a majority of independent directors or nominating, corporate governance or compensation committees composed entirely of independent directors. Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.
Accounting & Financial Operations2 | 3.2%
Accounting & Financial Operations - Risk 1
We typically do not obtain independent evaluations of hydrocarbon reserves; therefore, volumes we service in the future could be less than we anticipate.Accounting & Financial Operations - Risk 2
An impairment of long-lived assets, including intangible assets, equity method investments, and right-of-use assets related to leases could reduce our earnings.GAAP requires us to test long-lived assets, including intangible assets with finite useful lives, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the investments we account for under the equity method, the impairment test considers whether the fair value of the unconsolidated affiliate investment as a whole, not the underlying net assets, has declined and whether that decline is other than temporary. If we determine that an impairment is indicated, we would be required to take an immediate non-cash charge to earnings with a correlative effect on equity and balance sheet leverage as measured by debt to total capitalization. We recognized impairment expense related to property and equipment as follows (in millions):
Year Ended December 31,202320222021Property and equipment impairment (1)$20.7 $- $0.6 (1)During the third quarter of 2023, we identified changes in our outlook for future cash flows and the anticipated use of certain ORV crude assets in our Louisiana segment. We determined that the carrying amounts of these assets exceeded their fair values, based on market inputs and certain assumptions.
Additional impairments of the value of our existing long-lived assets could have a significant negative impact on our future operating results.
Debt & Financing6 | 9.7%
Debt & Financing - Risk 1
Any reductions in our credit ratings could increase our financing costs, increase the cost of maintaining certain contractual relationships, and reduce our cash available for distribution.Debt & Financing - Risk 2
Our debt levels could limit our flexibility and adversely affect our financial health or limit our flexibility to obtain financing and to pursue other business opportunities.We continue to have the ability to incur debt, subject to limitations in our debt agreements. Our level of indebtedness could have important consequences to us, including the following:
- our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions, or other purposes may be impaired or such financing may not be available on favorable terms;- our funds available for operations, future business opportunities, and distributions to unitholders will be reduced by that portion of our cash flows required to make interest payments on our debt;- our debt level will make us more vulnerable to general adverse economic and industry conditions;- our ability to plan for, or react to, changes in our business and the industry in which we operate; and - our risk that we may default on our debt obligations.
In addition, our ability to make scheduled payments or to refinance our obligations depends on our successful financial and operating performance, which will be affected by prevailing economic, financial, and industry conditions, many of which are beyond our control. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to take actions such as further reducing distributions, reducing or delaying our business activities, acquisitions, investments, or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital. We may not be able to undertake any of these actions on satisfactory terms or at all.
Debt & Financing - Risk 3
The terms of the Revolving Credit Facility, the AR Facility, and indentures governing our senior unsecured notes and ENLK's senior unsecured notes may restrict our current and future operations, particularly our ability to respond to changes in business or to take certain actions.The Revolving Credit Facility, the AR Facility, and the indentures governing our senior unsecured notes and ENLK's senior unsecured notes contain, and any future indebtedness we incur will likely contain, a number of restrictive covenants that impose significant operating and financial restrictions, including restrictions on our ability to engage in acts that may be in our best long-term interest. One or more of these agreements include covenants that, among other things, restrict our ability to:
- incur subsidiary indebtedness;- engage in transactions with our affiliates;- consolidate, merge, or sell substantially all of our assets;- incur liens;- enter into sale and lease back transactions; and - change business activities we conduct.
Unless waived or otherwise agreed by the requisite lenders under ENLC's debt agreements, a change in control (as defined in the applicable debt agreement) of ENLC would result in an event of default under the Revolving Credit Facility and the AR Facility, and such event could result in a prepayment event under other debt agreements.
In addition, the Revolving Credit Facility and the AR Facility require ENLC's consolidated net leverage ratio not to exceed a specified limit. The AR Facility also contains events of default relating to a borrowing base deficiency and events negatively affecting the overall credit quality of the receivables securing the AR Facility. Our ability to meet those financial ratios and receivables-related tests can be affected by events beyond our control, including prevailing economic, financial, and industry conditions, and we cannot assure you that we will meet those ratios and receivables-related tests, particularly if market or other economic conditions deteriorate.
A breach of any of these covenants could result in an event of default under the applicable debt agreement. Upon the occurrence of such an event of default, all amounts outstanding under the applicable debt agreements could be declared to be immediately due and payable and all applicable commitments to extend further credit could be terminated. If indebtedness under the applicable debt agreements is accelerated, there can be no assurance that we will have sufficient assets to repay the indebtedness. The operating and financial restrictions and covenants in these debt agreements and any future debt agreements may adversely affect our ability to finance future operations or capital needs or to engage in other business activities.
Debt & Financing - Risk 4
Our cash flow consists almost exclusively of cash flows from ENLK.Currently, our only cash-generating asset is our partnership interest in ENLK. Our cash flow is therefore completely dependent upon the ability of ENLK to generate cash or our ability to borrow under the Revolving Credit Facility and the AR Facility.
The amount of cash that ENLK can provide to us each quarter principally depends upon the amount of cash it generates from its operations, which will fluctuate from quarter to quarter based on, among other things:
- the fees ENLK charges and the margins it realizes for its services;- the prices of, levels of production of, and demand for crude oil, condensate, NGLs, and natural gas;- the volume of natural gas ENLK gathers, compresses, processes, transports, and sells, the volume of NGLs ENLK processes or fractionates and sells, the volume of crude oil ENLK handles at its crude terminals, the volume of crude oil and condensate that ENLK gathers, transports, purchases, and sells, the volumes of condensate stabilized;- the relationship between natural gas and NGL prices; and - ENLK's level of operating costs.
In addition, the actual amount of cash generated by ENLK that will be available to us will depend on other factors, some of which are beyond its control, including:
- the level of capital expenditures ENLK makes;- the cost of operational expenditures ENLK makes;- the cost of acquisitions, if any;- ENLK's debt service requirements and distribution requirements with respect to Series B Preferred Units and Series C Preferred Units;- fluctuations in its working capital needs;- prevailing economic conditions; and - the amount of cash reserves established by the General Partner in its sole discretion for the proper conduct of business.
Because of these and potentially other factors, we may not be able, or may not have sufficient available cash to pay distributions to unitholders each quarter. Furthermore, you should also be aware that the amount of cash ENLK has available depends primarily upon its cash flows, including cash flow from financial reserves and working capital borrowings, and is not solely a function of profitability, which will be affected by non-cash items. As a result, ENLK may make cash distributions during periods when it records losses and may not make cash distributions during periods when it records net income.
Debt & Financing - Risk 5
GIP has pledged all of the equity interests that it owns in ENLC and the Managing Member to GIP's lenders under its credit facility. A default under GIP's credit facility could result in a change in control of the Managing Member, which would permit the lenders under certain of ENLC's debt agreements to declare all amounts thereunder due and payable, and it could result in a prepayment event under some of our debt agreements.GIP has pledged all of the equity interests that it owns in ENLC and the Managing Member to its lenders as security under a secured credit facility entered into by a GIP entity in connection with GIP's purchase of equity interests in ENLK, ENLC, and the Managing Member from certain subsidiaries of Devon in 2018 (the "GIP Credit Facility"). Although we are not a party to this credit facility, if GIP were to default under the GIP Credit Facility, GIP's lenders could foreclose on the pledged equity interests. Any such foreclosure on GIP's interest would result in a change in control of the Managing Member and would allow the new owner to replace the board of directors and officers of the Managing Member with its own designees and to control the decisions taken by the board of directors and officers. On January 12, 2024, GIP announced that it entered into an agreement with BlackRock, Inc. pursuant to which BlackRock would acquire GIP for cash and stock consideration. GIP indicated that the transaction is expected to close in the third quarter of 2024 subject to customary regulatory approvals and other closing conditions. The consummation of the transaction may result in a change in control under the GIP Credit Facility, unless GIP obtains the consent of the lenders under, or otherwise amends, the GIP Credit Facility to permit such transaction. Moreover, any change in control of the Managing Member, which would occur upon a change of control of GIP, would permit the lenders under some of our debt agreements to declare all amounts thereunder immediately due and payable and would potentially result in prepayment events under some of our debt agreements. If any such event occurs, we may be required to refinance our debt on unfavorable terms, which could negatively impact our results of operations and our ability to make distributions to our unitholders. There can be no assurance that, if the GIP transaction results in a change in control of the Managing Member, we would be able to receive the consent of the lenders under, or otherwise amend, ENLC's Revolving Credit Facility or AR Facility, to permit such change in control.
Debt & Financing - Risk 6
Increases in interest rates would raise ENLC's cost of borrowing and could adversely impact the price of ENLC's common units, ENLC's or ENLK's ability to issue equity or incur debt for acquisitions or other purposes, and ENLC's or ENLK's ability to make cash distributions.Interest rates rose significantly during 2022 and 2023 as the Federal Reserve sought to control inflation. Our Revolving Credit Facility and our AR Facility have floating rates tied to SOFR or other interest rate benchmarks that generally rise alongside the increase in the federal funds rate. As a result, interest costs on our existing floating rate debt rose during 2022 and 2023 and, except to the extent we enter into hedging or other interest rate management agreements, would likely rise further if interest rates continue to rise. In addition, interest rates on future credit facilities and debt offerings could be higher than current levels, causing our financing costs to increase accordingly. As with other yield-oriented securities, ENLC's unit price is impacted by ENLC's level of cash distributions and implied distribution yield. The distribution yield is often used by investors to compare and rank yield-oriented securities for investment decision-making purposes. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in ENLC's units, and a rising interest rate environment could have an adverse impact on the price of ENLC's common units, ENLC's ability to issue equity or incur debt for acquisitions or other purposes and ENLC's or ENLK's ability to make cash distributions at our intended levels or at all. Beginning with the interest period commencing on December 15, 2022, distributions on ENLK's Series C Preferred Units have been based on a floating rate tied to LIBOR rather than a fixed rate. As a result of the floating rate, the amount paid by ENLK for distributions became more sensitive to changes in interest rates. Starting on September 15, 2023, distributions on the Series C Preferred Units have been based on the forward-looking term rate based on SOFR ("Term SOFR").
Corporate Activity and Growth4 | 6.5%
Corporate Activity and Growth - Risk 1
ONEOK has stated that it intends to pursue an acquisition of the remaining ENLC common units not held by it (a "Public Unit Transaction"). There is no assurance that ONEOK's pursuit of a Public Unit Transaction will result in a definitive agreement or, if a definitive agreement is executed, that a Public Unit Transaction will be consummated.Added
Corporate Activity and Growth - Risk 2
We conduct a portion of our operations through joint ventures, which subjects us to additional risks that could have a material adverse effect on the success of these operations, our financial position, results of operations, or cash flows.We participate in several joint ventures, and we may enter into other joint venture arrangements in the future. The nature of a joint venture requires us to share control with unaffiliated third parties. If our joint venture partners do not fulfill their contractual and other obligations, the affected joint venture may be unable to operate according to its business plan, and we may be required to increase our level of commitment. If we do not timely meet our financial commitments or otherwise comply with our joint venture agreements, our ownership of and rights with respect to the applicable joint venture may be reduced or otherwise adversely affected. In addition, certain of our joint venture arrangements provide our joint venture partners with the right, under certain circumstances, to cause us to purchase their interest in the joint venture or to seek to sell the entire joint venture. For example, at any time after June 30, 2025, NGP has the right to cause the Delaware Basin JV to sell all of the outstanding interests or assets of the Delaware Basin JV for the best available price; provided that, if NGP exercises this right, we are permitted to purchase NGP's interest at a certain call price. Differences in views among joint venture participants could also result in delays in business decisions or otherwise, failures to agree on major issues, operational inefficiencies and impasses, litigation, or other issues. Third parties may also seek to hold us liable for the joint ventures' liabilities. These issues or any other difficulties that cause a joint venture to deviate from its original business plan could have a material adverse effect on our financial condition, results of operations, or cash flows.
Corporate Activity and Growth - Risk 3
We are building a new business providing CCS transportation services and we may enter into other new businesses in connection with our strategy to participate in the energy transition. If we are unable to execute on this strategy or operate these new lines of business effectively, our future growth could be limited. These new lines of business may never develop or may present risks that we cannot effectively manage.As part of our strategy, we are building a carbon transportation business to support CCS activities, and we may enter into other new lines of business as part of adapting to the energy transition. The CCS business and other new lines of business we may engage in are new businesses that have no track record and which, while similar to our existing businesses, may present different challenges and risks. We may be unable to execute on our business plans, demand for these new services may not develop on a large or economic scale, or we may fail to operate these businesses effectively. In addition, we may not be able to compete with companies who also plan to enter into these new lines of business, and who may be larger than us and may have greater financial resources to devote to these businesses. These new businesses may also present novel issues in law, taxation, safety or environmental policy, and other areas that we may not be able to manage effectively. Management's assessment of the risks in these new lines of business may be inexact and not identify or resolve all the problems that we could face. If we were not able to manage our new CCS business or any of the other new lines of business effectively or at all, it could limit our future growth as lines of business connected to the energy transition grow and become a more important part of the energy business. In October 2022, we entered into a transportation services agreement with a subsidiary of ExxonMobil in connection with the development of a CCS project in the Mississippi River corridor in southeastern Louisiana. Under the transportation agreement, we contracted to deliver CO2 from the Mississippi River corridor to ExxonMobil's storage location at Pecan Island in
Vermilion Parish, Louisiana, beginning in 2025. In February 2024, we announced that we and ExxonMobil have agreed to reassess the Pecan Island project's near-term role, with the expectation that other joint CCS opportunities along the Gulf Coast, and beyond the Mississippi River corridor, may be prioritized ahead of the Pecan Island project. If we were not able to agree with ExxonMobil on these alternative CCS opportunities, the future growth of our CCS business could be impacted.
Corporate Activity and Growth - Risk 4
If we do not make acquisitions on economically acceptable terms or efficiently and effectively integrate the acquired assets with our asset base, our future growth will be limited.Our ability to grow depends, in part, on our ability to make acquisitions that result in an increase in cash generated from operations on a per unit basis. If we are unable to make accretive acquisitions either because we are (1) unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts with them, (2) unable to obtain financing for these acquisitions on economically acceptable terms or at all or (3) outbid by competitors, then our future growth and our ability to increase distributions will be limited.
From time to time, we may evaluate and seek to acquire assets or businesses that we believe complement our existing business and related assets. We may acquire assets or businesses that we plan to use in a manner materially different from their prior owner's use. Any acquisition involves potential risks, including:
- the inability to integrate the operations of recently acquired businesses or assets, especially if the assets acquired are in a new business segment or geographic area;- the diversion of management's attention from other business concerns;- the failure to realize expected volumes, revenues, profitability, or growth;- the failure to realize any expected synergies and cost savings;- the coordination of geographically disparate organizations, systems, and facilities;- the assumption of unknown liabilities;- the loss of customers or key employees from the acquired businesses;- a significant increase in our indebtedness; and - potential environmental or regulatory liabilities and title problems.
Management's assessment of these risks is inexact and may not reveal or resolve all existing or potential problems associated with an acquisition. Realization of any of these risks could adversely affect our operations and cash flows. If we consummate any future acquisition, our capitalization and results of operations may change significantly, and you will not have the opportunity to evaluate the economic, financial, and other relevant information that we will consider in determining the application of these funds and other resources.
Legal & Regulatory
Total Risks: 14/62 (23%)Above Sector Average
Regulation5 | 8.1%
Regulation - Risk 1
Increased federal, state, and local legislation, and regulatory initiatives, as well as government reviews, relating to hydraulic fracturing could result in increased costs and reductions or delays in natural gas production by our customers, which could adversely impact our revenues and results of operations.Regulation - Risk 2
The ESA and MBTA govern our operations and additional restrictions may be imposed in the future, which could have an adverse impact on our operations.The ESA and analogous state laws restrict activities that may affect endangered or threatened species or their habitats. Similar protections are offered to migratory birds under the MBTA. The U.S. Fish and Wildlife Service and state agencies may designate critical or suitable habitat areas that they believe are necessary for the survival of threatened or endangered species, which could materially restrict use of or access to federal, state, and private lands. Some of our operations may be located in areas that are designated as habitats for endangered or threatened species or that may attract migratory birds. In these areas, we may be obligated to develop and implement plans to avoid potential adverse impacts to protected species, and we may be prohibited from conducting operations in certain locations or during certain seasons, such as breeding and nesting seasons, when our operations could have an adverse effect on the species. It is also possible that a federal or state agency could order a complete halt to our activities in certain locations if it is determined that such activities may have a serious adverse effect on a protected species. In addition, the U.S. Fish and Wildlife Service and state agencies regularly review species that are listing candidates, and designations of additional endangered or threatened species, or critical or suitable habitat, under the ESA could cause us to incur additional costs or become subject to operating restrictions or bans in the affected areas.
Regulation - Risk 3
Transportation on our liquids pipelines is subject to federal and state rate and service regulation, which could limit the revenues we collect from our customers and adversely affect the cash available for distribution to our unitholders. The imposition of regulation on our currently unregulated liquids pipeline operations also could increase our operating costs and adversely affect the cash available for distribution to our unitholders.The Cajun Sibon pipeline, Avenger crude gathering system, and Greater Chickadee crude gathering system are subject to regulation by FERC under the ICA, the Energy Policy Act of 1992, and the rules and regulations promulgated under those laws. If, upon completion of an investigation, FERC finds that new or changed rates are unlawful, it is authorized to require the pipeline to refund revenues collected in excess of the just and reasonable rates during the term of the investigation. FERC may also investigate, upon complaint or on its own motion, rates that are already in effect and may order a carrier to change its rates prospectively if it determines that the rates are unjust and unreasonable or unduly discriminatory or preferential. Under certain circumstances, FERC could limit our recovery of costs or could require us to reduce our rates and the payment of reparations to complaining shippers for up to two years prior to the date of the complaint. In particular, FERC's current income tax allowance policy could affect our rates going forward, although we do not currently expect to experience any impact to financial results as a result of this policy. In addition, our rates going forward could be affected by proposed changes to FERC's annual indexing methodology, currently pending on appeal before the United States Court of Appeals for the District of Columbia Circuit. All of these FERC policies and potential changes could have a material impact on our business and, if accepted, could decrease our rates and adversely affect our business.
As we acquire, construct, and operate new liquids assets and expand our liquids transportation business, the classification and regulation of our liquids transportation services, including services that our marketing companies provide on our FERC-regulated liquids pipelines, are subject to ongoing assessment and change based on the services we provide and determinations by FERC and the courts. Such changes may subject additional services we provide to regulation by FERC, which could increase our operating costs, decrease our rates, and adversely affect our business.
Regulation - Risk 4
Transportation on certain of our natural gas pipelines is subject to federal and state rate and service regulation, which could limit the revenues we collect from our customers and adversely affect the cash available for distribution to our unitholders. The imposition of regulation on our currently unregulated natural gas pipelines also could increase our operating costs and adversely affect the cash available for distribution to our unitholders.The rates, terms, and conditions of service under which we transport and store natural gas in our systems in interstate commerce are subject to regulation by FERC under the NGA and Section 311 of the NGPA and the rules and regulations promulgated under those statutes. Under the NGA, FERC regulation requires that interstate natural gas pipeline rates be filed with FERC and that these rates be "just and reasonable," not unduly preferential and not unduly discriminatory, although negotiated or settlement rates may be accepted in certain circumstances. Interested persons may challenge proposed new or changed rates, and FERC is authorized to suspend the effectiveness of such rates pending an investigation or hearing. FERC may also investigate, upon complaint or on its own motion, rates that are already in effect and may order a pipeline to change its rates prospectively. Accordingly, action by FERC could adversely affect our ability to establish rates that cover operating costs and allow for a reasonable return. An adverse determination in any future rate proceeding brought by or against us could have a material adverse effect on our business, financial condition, results of operations, and cash available for distribution. Under the NGPA, we are required to justify our rates for interstate transportation service on a cost-of-service basis every five years (excluding our Section 311 storage facility with market-based rates). In addition, our intrastate natural gas pipeline operations are subject to regulation by various agencies of the states in which they are located. Should FERC or any of these state agencies determine that our rates for transportation service should be lowered, our business could be adversely affected.
Our natural gas gathering and processing activities generally are exempt from FERC regulation under the Natural Gas Act. However, the distinction between FERC-regulated transmission services and federally unregulated gathering services is the subject of substantial, ongoing litigation, so the classification and regulation of our gathering facilities are subject to change based on future determinations by FERC and the courts. Natural gas gathering may receive greater regulatory scrutiny at both the state and federal levels since FERC has less extensively regulated the gathering activities of interstate pipeline transmission companies, and a number of such companies have transferred gathering facilities to unregulated affiliates. Application of FERC jurisdiction to our gathering facilities could increase our operating costs, decrease our rates, and adversely affect our business. Our gathering operations also may be or become subject to safety and operational regulations relating to the design, installation, testing, construction, operation, replacement, and management of gathering facilities. Additional rules and legislation pertaining to these matters are considered or adopted from time to time. We cannot predict what effect, if any, such changes might have on our operations, but the industry could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes.
If we fail to comply with all the applicable FERC-administered statutes, rules, regulations, and orders, we could be subject to substantial penalties and fines. Under the EPAct 2005, FERC has civil penalty authority to impose penalties for current violations of the NGA or NGPA of up to $1.5 million per day and will continue to be adjusted periodically for inflation. FERC also has the power to order disgorgement of profits from transactions deemed to violate the NGA and EPAct 2005.
Other state and local regulations also affect our business. We are subject to some ratable take and common purchaser statutes in the states where we operate. Ratable take statutes generally require gatherers to take, without undue discrimination, natural gas production that may be tendered to the gatherer for handling. Similarly, common purchaser statutes generally require gatherers to purchase without undue discrimination as to source of supply or producer. These statutes have the effect of restricting our right as an owner of gathering facilities to decide with whom we contract to purchase or transport natural gas. Federal law leaves any economic regulation of natural gas gathering to the states, and some of the states in which we operate have adopted complaint-based or other limited economic regulation of natural gas gathering activities. States in which we operate that have adopted some form of complaint-based regulation, like Texas, generally allow natural gas producers and shippers to file complaints with state regulators in an effort to resolve grievances relating to natural gas gathering access and rate discrimination.
Regulation - Risk 5
Our operations are dependent on our rights and ability to receive or renew the required permits and other approvals from governmental authorities and other third parties.Performance of our operations requires that we obtain and maintain numerous environmental and land use permits and other approvals authorizing our business activities. A decision by a governmental authority or other third party to deny, delay, or restrictively condition the issuance of a new or renewed permit or other approval, or to revoke or substantially modify an existing permit or other approval, could have a material adverse effect on our ability to initiate or continue operations at the affected location or facility. Expansion of our existing operations is also predicated on securing the necessary environmental or land use permits and other approvals, which we may not receive in a timely manner or at all.
In order to obtain permits and renewals of permits and other approvals in the future, we may be required to prepare and present data to governmental authorities pertaining to the potential adverse impact that any proposed activities may have on the environment, individually or in the aggregate, including on public and Indian lands. Certain approval procedures may require preparation of archaeological surveys, endangered species studies, and other studies to assess the environmental impact of new sites or the expansion of existing sites. Compliance with these regulatory requirements is expensive and significantly lengthens the time needed to develop a site or pipeline alignment. Also, obtaining or renewing required permits or other approvals is sometimes delayed or prevented due to community opposition and other factors beyond our control. The denial of a permit or other approvals essential to our operations or the imposition of restrictive conditions with which it is not practicable or feasible to comply could impact our operations or prevent our ability to expand our operations or obtain rights-of-way. Significant opposition to a permit or other approvals by neighboring property owners, members of the public, or non-governmental organizations, or other third parties or delays in the environmental review and permitting process also could impact our operations or prevent our ability to expand our operations or obtain rights-of-way.
Taxation & Government Incentives3 | 4.8%
Taxation & Government Incentives - Risk 1
Changes in tax laws or policies, including but not limited to changes in corporate income tax rates, as well as judgments and estimates used in the determination of tax-related asset and liability amounts, could materially adversely affect our business, financial condition, results of operations and prospects.Taxation & Government Incentives - Risk 2
We are treated as a corporation subject to entity level federal and state income taxation. Any such entity level income taxes will reduce the amount of cash available for distribution.We are treated as a corporation for tax purposes that is required to pay federal and state income tax on our taxable income at corporate rates. Historically, we have had net operating losses ("NOLs") that eliminated substantially all of our taxable income and, thus, we historically have not had to pay material amounts of income taxes. In the event we do generate taxable income, federal and state income tax liabilities will reduce the cash available for distribution to our unitholders.
Taxation & Government Incentives - Risk 3
We may not realize our deferred tax assets.As of December 31, 2023, we had deferred tax assets (primarily consisting of federal and state net operating loss carryovers) of $759.5 million. The ultimate realization of our deferred tax assets is dependent upon generating future taxable income to utilize our net operating loss carryovers before they expire.
Additionally, Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"), generally imposes an annual limitation on the amount of net operating losses and certain other tax attributes (such as tax credits) that may be used to offset taxable income by a corporation that has undergone an "ownership change" (as determined under Section 382). An ownership change generally occurs if one or more unitholders (or groups of unitholders) that are each deemed to own at least 5% of our common units increase their ownership by more than 50 percentage points over their lowest ownership percentage during a rolling three-year period. As of December 31, 2023, we have not experienced an ownership change. Therefore, our utilization of net operating loss carryforwards was not subject to an annual limitation. However, if we were to experience ownership changes in the future as a result of subsequent shifts in our common unit ownership, our ability to use our pre-change net operating loss carryforwards to offset future taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. Additionally, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. In any case, our net operating loss carryforwards are subject to review and potential disallowance upon audit by the tax authorities of the jurisdictions where these tax attributes are incurred.
The value of our deferred tax assets and liabilities are also dependent upon the tax rates expected to be in effect at the time they are realized. A change in enacted corporate tax rates in our major jurisdictions, especially the U.S. federal corporate tax rate, would change the value of our deferred taxes, which could be material.
Environmental / Social6 | 9.7%
Environmental / Social - Risk 1
Climate change legislation and regulatory initiatives could result in increased operating costs and reduced demand for the natural gas and NGL services we provide.Environmental / Social - Risk 2
Recent rules under the Clean Air Act imposing more stringent requirements on the oil and gas industry could cause our customers and us to incur increased capital expenditures and operating costs as well as reduce the demand for our services.We are subject to stringent and complex regulation under the federal Clean Air Act, implementing regulations, and state and local equivalents, including regulations related to controls for oil and natural gas production, pipelines, and processing operations. For instance, the EPA finalized new rules, effective August 2, 2016, to regulate emissions of methane and VOCs from new and modified sources in the oil and gas sector. In September 2020, the EPA published two additional final rules, the 2020 Policy Rule and the 2020 Technical Amendments. The 2020 Policy Rule removed sources in the transmission and storage segment from the regulated source category of the 2016 NSPS, rescinded the NSPS (including both VOC and methane requirements) applicable to those sources, and rescinded the methane-specific requirements of the NSPS applicable to sources in the production and processing segments. In June 2020, President Biden signed a joint congressional resolution rescinding the 2020 Policy Rule, and in December 2023, the EPA issued a new rule targeting methane and VOC emissions from new and existing oil and gas sources, including sources in the production, processing, transmission, and storage segments. The rule: (1) updates NSPS subpart OOOOa; (2) adopts a new NSPS subpart OOOOb for sources that commence construction, modification, or reconstruction after December 6, 2022; and (3) adopts a new NSPS subpart OOOOc to establish emissions guidelines that will be used to guide states when establishing methane standards for facilities that were existing sources on or before December 6, 2022.
On December 2, 2023, the EPA published a final rule to reduce methane and volatile organic chemicals emissions from the oil and natural gas sector, which strengthens and expands the EPA's previous revisions to the NSPS program. Also, on November 17, 2023, the EPA issued a final rule that enables states to implement more stringent methane emissions standards than the federal guidelines require, which some states have already begun to do. For example, in July 2023, LDNR issued a proposed rule that would restrict routine venting and flaring of methane from oil and natural gas production facilities in the state. Several other states are also pursuing similar measures to regulate emissions of methane from new and existing sources within the oil and natural gas source category. In addition, in January 2023, the EPA announced a proposed consent decree that,if finalized as proposed, would establish a December 10, 2024 deadline for the EPA to review and propose revisions to the NESHAP for oil and natural gas production facilities and natural gas transmission and storage facilities.
In November 2016, the BLM adopted rules to reduce venting, flaring, and leaks during oil and natural gas production activities on onshore federal and Indian leases. In September 2018, BLM published a final rule to repeal certain requirements of the 2016 methane rule. The September 2018 rule was challenged in the U.S. District Court for the Northern District of California almost immediately after issuance. Then, in July 2020, the U.S. District Court for the Northern District of California vacated BLM's 2018 revision rule, and in October 2020, a Wyoming federal district judge vacated the 2016 rule. However, in December 2020, environmental groups appealed the October 2020 decision, and litigation is ongoing.
Additional regulation of GHG emissions from the oil and gas industry remains a possibility. These regulations could require a number of modifications to our operations, and our natural gas exploration and production suppliers' and customers' operations, including the installation of new equipment, which could result in significant costs, including increased capital expenditures and operating costs. The incurrence of such expenditures and costs by our suppliers and customers could result in reduced production by those suppliers and customers and thus translate into reduced demand for our services. Responding to rule challenges, the EPA has since revised certain aspects of its April 2012 rules and has indicated that it may reconsider other aspects of the rules.
Environmental / Social - Risk 3
Failure to comply with existing or new environmental laws or regulations or an accidental release of hazardous substances, hydrocarbons, or wastes into the environment may cause us to incur significant costs and liabilities.Many of the operations and activities of our pipelines, gathering systems, processing plants, fractionators, brine disposal operations, and other facilities are subject to significant federal, state, and local environmental laws and regulations, the violation of which can result in administrative, civil, and criminal penalties, including civil fines, injunctions, or both. The obligations imposed by these laws and regulations include obligations related to air emissions and discharge of pollutants from our pipelines and other facilities and the cleanup of hazardous substances and other wastes that are or may have been released at properties currently or previously owned or operated by us or locations to which we have sent wastes for treatment or disposal. These laws impose strict, joint and several liability for the remediation of contaminated areas. Private parties, including the owners of properties near our facilities or upon or through which our gathering systems traverse, may also have the right to pursue legal actions to enforce compliance and to seek damages for non-compliance with environmental laws for releases of contaminants or for personal injury or property damage.
Our business may be adversely affected by increased costs due to stricter pollution control requirements or liabilities resulting from non-compliance with required operating or other regulatory permits. New environmental laws or regulations, including, for example, legislation relating to the control of greenhouse gas emissions, or changes in existing environmental laws or regulations might adversely affect our products and activities, including processing, storage, and transportation, as well as waste management and air emissions. Federal and state agencies could also impose additional safety requirements, any of which could affect our profitability. Changes in laws or regulations could also limit our production or the operation of our assets or adversely affect our ability to comply with applicable legal requirements or the demand for crude oil, brine disposal services, or natural gas, which could adversely affect our business and our profitability.
Environmental / Social - Risk 4
We may incur significant costs and liabilities resulting from compliance with pipeline safety regulations.The pipelines we own and operate are subject to stringent and complex regulation related to pipeline safety and integrity management. For instance, the Department of Transportation, through PHMSA, has established a series of rules that require pipeline operators to develop and implement integrity management programs for hazardous liquid (including oil) pipeline segments that, in the event of a leak or rupture, could affect HCAs. In October 2019, PHMSA issued three new final rules. One rule, effective in December 2019, establishes procedures to implement the expanded emergency order enforcement authority set forth in an October 2016 interim final rule. Among other things, this rule allows PHMSA to issue an emergency order without advance notice or opportunity for a hearing. The other two rules, which went into effect in July 2020, impose several new requirements on operators of onshore natural gas transmission systems and hazardous liquids pipelines. The rule concerning natural gas transmission extends the requirement to conduct integrity assessments beyond HCAs to pipelines in MCAs. It also includes requirements to reconfirm MAOP, report MAOP exceedances, consider seismicity as a risk factor in integrity management, and use certain safety features on in-line inspection equipment. The rule concerning hazardous liquids extends the required use of leak detection systems beyond HCAs to all regulated non-gathering hazardous liquid pipelines, requires reporting for gravity fed lines and unregulated gathering lines, requires periodic inspection of all lines not in HCAs, calls for inspections of lines after extreme weather events, and adds a requirement to make all lines in or affecting HCAs capable of accommodating in-line inspection tools over the next 20 years. Additional action by PHMSA with respect to pipeline integrity management requirements may occur in the future. For example, in May 2023, PHMSA proposed a new rule that would enhance leak survey and patrol requirements and require operators to identify and repair leaks. Additionally, in September 2023, PHMSA issued a proposed rule applicable to natural gas transmission and distribution and gathering pipelines, which would require updates to emergency response plans and other safety practices. At this time, we cannot predict the cost of future requirements, but they could be significant. Moreover, violations of pipeline safety regulations can result in the imposition of significant penalties.
Several states have also passed legislation or promulgated rules to address pipeline safety. Compliance with pipeline integrity laws and other pipeline safety regulations issued by state agencies, such as the TRRC, could result in substantial expenditures for testing, repairs, and replacement. For example, TRRC regulations require periodic testing of all intrastate pipelines meeting certain size and location requirements. Our costs relating to compliance with the required testing under the TRRC regulations were approximately $3.1 million, $2.1 million, and $3.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. If our pipelines fail to meet the safety standards mandated by the TRRC or PHMSA regulations, then we may be required to repair or replace sections of such pipelines or operate the pipelines at a reduced operating pressure, the cost of which actions cannot be estimated at this time.
Due to the possibility of new or amended laws and regulations or reinterpretation of existing laws and regulations, there can be no assurance that future compliance with PHMSA or state requirements will not have a material adverse effect on our results of operations or financial positions. Moreover, because certain of our operations are located around urban or more populated areas, such as the Barnett Shale, we may incur additional expenses from compliance with municipal and other local or state regulations that impose various obligations including, among other things, regulating the locations of our facilities; limiting the noise, odor, or light levels of our facilities; and requiring certain other improvements, including to the appearance of our facilities, that result in increased costs for our facilities. We are also subject to claims by neighboring landowners for nuisance related to the construction and operation of our facilities, which could subject us to damages for declines in neighboring property values due to our construction and operation activities.
Environmental / Social - Risk 5
Our business is subject to complex and evolving U.S. laws and regulations regarding privacy and data protection ("data protection laws"). Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, increased cost of operations, or otherwise harm our business.The regulatory environment surrounding data privacy and protection is constantly evolving and can be subject to significant change. New data protection laws pose increasingly complex compliance challenges and potentially elevate our costs. Complying with varying jurisdictional requirements could increase the costs and complexity of compliance, and violations of applicable data protection laws can result in significant penalties. Any failure, or perceived failure, by us to comply with applicable data protection laws could result in proceedings or actions against us by governmental entities or others, subject us to significant fines, penalties, judgments, and negative publicity, require us to change our business practices, increase the costs and complexity of compliance, and adversely affect our business. As noted above, we are also subject to the possibility of cyberattacks, which themselves may result in a violation of these laws. Additionally, if we acquire a company that has violated or is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result.
Environmental / Social - Risk 6
Increasing scrutiny and changing expectations from stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.Companies across all industries are facing increasing scrutiny from stakeholders related to their environmental, social, and governance ("ESG") practices. Investor advocacy groups, certain institutional investors, investment funds, and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. Regardless of the industry, investors' increased focus and activism related to ESG and similar matters may hinder access to capital, as investors may decide to reallocate capital or to not commit capital as a result of their assessment of a company's ESG practices. Companies that do not adapt to or comply with investor or stakeholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and the business, financial condition, and/or stock price of such a company could be materially and adversely affected.
We could also face pressures from stakeholders, who are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability. These stakeholders could require us to implement ESG procedures or standards in order to remain invested in us or before they could make further investments in us. Additionally, we could face reputational challenges in the event our ESG procedures or standards do not meet the standards set by certain constituencies. In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Unfavorable ESG ratings may lead to increased negative investor sentiment toward us or our customers and to the diversion of investment to other industries which could have a negative impact on our unit price and/or our access to and costs of capital. We have adopted certain practices as highlighted in our annual sustainability report, including a focus on environmental stewardship by operating our assets and constructing new facilities in order to minimize our footprint and environmental impact, control pollution, and conserve resources. It is possible, however, that our stakeholders might not be satisfied with our sustainability efforts or the speed of their adoption. If we do not meet stakeholder expectations, our business, ability to access capital, and/or our common unit price could be harmed.
Additionally, adverse effects upon the oil and gas industry related to global, national, and various state social and political environments, including uncertainty or instability resulting from climate change, changes in political leadership and environmental policies, changes in geopolitical-social views toward fossil fuels and renewable energy, concern about the environmental impact of climate change and investors' expectations regarding ESG matters, may also adversely affect demand for our services. Any long-term material adverse effect on the oil and gas industry could have a significant financial and operational adverse impact on our business.
Production
Total Risks: 10/62 (16%)Above Sector Average
Manufacturing1 | 1.6%
Manufacturing - Risk 1
Construction of our major development projects subjects us to risks of construction delays, cost over-runs, limitations on our growth, and negative effects on our financial condition, results of operations, or cash flows.Employment / Personnel2 | 3.2%
Employment / Personnel - Risk 1
Failure to attract and retain an appropriately qualified workforce could reduce labor productivity and increase labor costs, which could have a material adverse effect on our business and results of operations.Employment / Personnel - Risk 2
Our success depends on key members of our management, the loss or replacement of whom could disrupt our business operations.We depend on the continued employment and performance of our officers and key operational personnel. If any of these officers or other key personnel resign or become unable to continue in their present roles and are not adequately replaced, our business operations could be materially adversely affected. We do not maintain any "key man" life insurance for any officers.
Supply Chain1 | 1.6%
Supply Chain - Risk 1
If third-party pipelines or other midstream facilities interconnected to our gathering or transportation systems become partially or fully unavailable, or if the volumes we gather, process, or transport do not meet the quality requirements of the pipelines or facilities to which we connect, our adjusted gross margin and cash flow could be adversely affected.Costs6 | 9.7%
Costs - Risk 1
Our use of derivative financial instruments does not eliminate our exposure to fluctuations in commodity prices and interest rates and has in the past and could in the future result in financial losses or reduce our income.Costs - Risk 2
Our construction of new assets may be more expensive than anticipated, may not result in revenue increases, and may be subject to regulatory, environmental, political, legal, and economic risks that could adversely affect our financial condition, results of operations, or cash flows.The construction of additions or modifications to our existing systems and the construction of new midstream assets involves numerous regulatory, environmental, political, and legal uncertainties beyond our control, including potential protests or legal actions by interested third parties, and may require the expenditure of significant amounts of capital. Financing may not be available on economically acceptable terms or at all. If we undertake these projects, we may not be able to complete them on schedule, at the budgeted cost, or at all. Moreover, our revenues may not increase due to the successful construction of a particular project. For instance, if we expand a pipeline or construct a new pipeline, the construction may occur over an extended period of time, and we may not receive any material increases in revenues promptly following completion of a project or at all. Moreover, we may construct facilities to capture anticipated future production growth in a region in which such growth does not materialize. As a result, new facilities may not be able to attract enough throughput to achieve our expected investment return, which could adversely affect our financial condition, results of operations, or cash flows. In addition, the construction of additions to our existing gathering and processing assets or new pipelines or pipeline segments will generally require us to obtain new rights-of-way and permits prior to constructing new pipelines or facilities. We may be unable to timely obtain such rights-of-way or permits to connect new product supplies to our existing gathering lines or capitalize on other attractive expansion opportunities. Additionally, it may become more expensive for us to obtain new rights-of-way or to expand or renew existing rights-of-way. If the cost of renewing or obtaining new rights-of-way increases, our cash flows could be adversely affected.
Costs - Risk 3
Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. The occurrence of a significant accident or other event that is not fully insured could adversely affect our operations and financial condition.Our operations are subject to the many hazards inherent in the gathering, compressing, processing, transporting, fractionating, disposing, and storage of natural gas, NGLs, condensate, and crude oil, including:
- damage to pipelines, facilities, storage caverns, equipment, and surrounding properties caused by hurricanes, floods, sink holes, fires, and other natural disasters and acts of terrorism;- inadvertent damage to our assets from construction, farm equipment, or operations on adjacent properties;- leaks of natural gas, NGLs, crude oil, condensate, and other hydrocarbons;- induced seismicity;- equipment failure; and - fires and explosions.
These risks could result in substantial losses due to personal injury and/or loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage and may result in curtailment or suspension of our related operations. We are not fully insured against all risks incident to our business. In accordance with typical industry practice, we have appropriate levels of business interruption and property insurance on our underground pipeline systems. We are not insured against all environmental accidents that might occur. If a significant accident or event occurs that is not fully insured, it could adversely affect our operations and financial condition.
Costs - Risk 4
We do not own all of the land on which our pipelines, compression, and plant facilities are located, which could disrupt our operations.We do not own all of the land on which our pipelines, compression, and plant facilities are located, and we are therefore subject to the possibility of more onerous terms and/or increased costs to retain necessary land use if we do not have valid rights-of-way or leases or if such rights-of-way or leases lapse or terminate. We sometimes obtain the rights to land owned by third parties and governmental agencies for a specific period of time. Our loss of these rights, through our inability to renew right-of-way contracts, leases, or otherwise, could cause us to cease operations on the affected land, increase costs related to continuing operations elsewhere, and reduce our revenue.
Costs - Risk 5
Our profitability is dependent upon prices and market demand for crude oil, condensate, natural gas, and NGLs that are beyond our control and have been volatile. A depressed commodity price environment could result in financial losses and reduce our cash available for distribution.We are subject to significant risks due to fluctuations in commodity prices. We are directly exposed to these risks primarily in the natural gas processing and NGL fractionation components of our business. Under percent of liquids contracts, we receive a fee in the form of a percentage of the liquids recovered, and the producer bears all the cost of the natural gas shrink. Accordingly, our revenues under percent of liquids contracts are directly impacted by the market price of NGLs. Adjusted gross margin under percent of proceeds contracts is impacted only by the value of the natural gas or liquids produced with margins higher during periods of higher natural gas and liquids prices.
We also realize adjusted gross margins under processing margin contracts. We have a number of processing margin contracts for activities at our Plaquemine and Pelican processing plants. Under this type of contract, we pay the producer for the full amount of inlet natural gas to the plant, and we make a margin based on the difference between the value of liquids recovered from the processed natural gas as compared to the value of the natural gas volumes lost ("shrink") and the cost of fuel used in processing. The shrink and fuel losses are referred to as plant thermal reduction ("PTR"). Our margins from these contracts can be greatly reduced or eliminated during periods of high natural gas prices relative to liquids prices.
We are also indirectly exposed to commodity prices due to the negative impacts of low commodity prices on production and the development of production of crude oil, condensate, natural gas, and NGLs connected to or near our assets and on the levels of volumes we transport between certain market centers.
Although the majority of our NGL fractionation business is under fee-based arrangements, a portion of our business is exposed to commodity price risk because we realize a margin due to product upgrades associated with our Louisiana fractionation business.
For the year ended December 31, 2023, approximately 10% of our total adjusted gross margin was generated under percent of liquids contracts and percent of proceeds contracts, with most of these contracts relating to our processing plants in the Permian Basin, processing margin contracts, and NGL product upgrades.
Commodity prices were volatile during 2023. Crude oil prices decreased 11%, weighted average NGL prices decreased 21%, and natural gas prices decreased 44% from January 1, 2023 to December 31, 2023. The table below shows the range of closing prices for crude oil, NGL, and natural gas during 2023.
CommodityClosing PriceDateCrude oil (high) (1)$93.68 September 27, 2023Crude oil (low) (1)$66.74 March 17, 2023Crude oil (average) (1)(4)$77.60 -NGL (high) (2)$0.69 January 19, 2023NGL (low) (2)$0.34 June 12, 2023NGL (average) (2)(4)$0.50 -Natural gas (high) (3)$4.17 January 4, 2023Natural gas (low) (3)$1.99 March 29, 2023Natural gas (average) (3)(4)$2.66 -(1)Crude oil closing prices based on the NYMEX futures daily close prices.
(2)Weighted average NGL closing prices based on the Oil Price Information Service Napoleonville daily average spot liquids prices.
(3)Natural gas closing prices based on Gas Daily Henry Hub closing prices.
(4)The average closing price was computed by taking the sum of the closing prices of each trading day divided by the number of trading days during the period presented.
The markets and prices for crude oil, condensate, natural gas, and NGLs depend upon factors beyond our control that make it difficult to predict future commodity price movements with any certainty. These factors include the supply and demand for crude oil, condensate, natural gas, and NGLs, which fluctuate with changes in market and economic conditions and other factors, including:
- the impact of weather on the supply and demand for crude oil and natural gas;- the level of domestic crude oil, condensate, and natural gas production;- technology, including improved production techniques (particularly with respect to shale development);- the level of domestic industrial and manufacturing activity;- the availability of imported crude oil, natural gas, and NGLs;- international demand for crude oil and NGLs;- actions taken by foreign crude oil and natural gas producing nations;- the continued threat of terrorism and the actual or potential disruptions to supply chains from geopolitical conflicts, military action and civil unrest;- public health crises or pandemics that reduce economic activity and affect the demand for travel;- the availability of local, intrastate, and interstate transportation systems;- the availability of downstream NGL fractionation facilities;- the availability and marketing of competitive fuels;- the development and adoption of alternative energy technologies, such as electric vehicles;- the impact of energy conservation efforts; and - the extent of governmental regulation and taxation, including the regulation of hydraulic fracturing and "greenhouse gases."
Changes in commodity prices also indirectly impact our profitability by influencing drilling activity and well operations, and thus the volume of natural gas, crude oil, and condensate we gather and process and NGLs we fractionate. Volatility in commodity prices may cause our adjusted gross margin and cash flows to vary widely from period to period. Our hedging strategies may not be sufficient to offset price volatility risk and, in any event, do not cover all of our throughput volumes. Moreover, hedges are subject to inherent risks, which we describe in "Item 7A. Quantitative and Qualitative Disclosure about Market Risk." Our use of derivative financial instruments does not eliminate our exposure to fluctuations in commodity prices and interest rates and has (in the past) resulted and could (in the future) result in financial losses or reductions in our income.
Costs - Risk 6
Cost reimbursements due to the Managing Member and its affiliates for services provided, which will be determined by the Managing Member, could be substantial and would reduce cash available for distribution to our unitholders.Prior to making distributions on ENLC common units, we will reimburse the Managing Member and its affiliates for all expenses they incur on our behalf. These expenses will include all costs incurred by the Managing Member and its affiliates in managing and operating us, including costs for rendering corporate staff and support services to us, if any. There is no limit on the amount of expenses for which the Managing Member and its affiliates may be reimbursed. Our operating agreement provides that the Managing Member will determine the expenses that are allocable to us. In addition, to the extent the Managing Member incurs obligations on behalf of us, we are obligated to reimburse or indemnify the Managing Member. If we are unable or unwilling to reimburse or indemnify the Managing Member, the Managing Member may take actions to cause us to make payments of these obligations and liabilities. Any such payments could reduce the amount of cash otherwise available for distribution to our unitholders.
Ability to Sell
Total Risks: 9/62 (15%)Above Sector Average
Competition2 | 3.2%
Competition - Risk 1
We must continually compete for crude oil, condensate, natural gas, and NGL supplies, and any decrease in supplies of such commodities could adversely affect our financial condition, results of operations, or cash flows.Competition - Risk 2
ONEOK is not limited in its ability to compete with us and is not obligated to offer us the opportunity to acquire additional assets or businesses, which could limit our ability to grow and could adversely affect our results of operations and cash available for distribution to our unitholders.Changed
ONEOK is a midstream operator that provides gathering, processing, fractionation, transportation, and storage services, with significant resources and experience in the midstream industry. ONEOK is not prohibited from owning assets or interests in entities, or engaging in businesses, that compete directly or indirectly with us. In addition, ONEOK and its subsidiaries may acquire, construct, or dispose of additional midstream or other assets and may be presented with new business opportunities, without any obligation to offer us the opportunity to purchase or construct such assets or to engage in such business opportunities.
Pursuant to the terms of our operating agreement, the doctrine of corporate opportunity, or any analogous doctrine, does not apply to the Managing Member, or any of its affiliates, including ONEOK and its officers. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any unitholder for breach of any duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself.
Demand4 | 6.5%
Demand - Risk 1
Adverse developments in our gathering, transmission, processing, crude oil, condensate, natural gas, and NGL services businesses would adversely affect our financial condition and results of operations, and reduce our ability to make distributions to our unitholders.Demand - Risk 2
A reduction in demand for NGL products by the petrochemical, refining, or other industries or by the fuel markets could materially adversely affect our financial condition, results of operations, or cash flows.The NGL products we produce have a variety of applications, including as heating fuels, petrochemical feedstocks, and refining blend stocks. A reduction in demand for NGL products, whether because of general or industry specific economic conditions, new government regulations, global competition, reduced demand by consumers for products made with NGL products (for example, reduced petrochemical demand observed due to lower activity in the automobile and construction industries), increased competition from petroleum-based feedstocks due to pricing differences, mild winter weather for some NGL applications, or other reasons could result in a decline in the volume of NGL products we handle or reduce the fees we charge for our services. Our NGL products and the demand for these products are affected as follows:
- Ethane. Ethane is typically supplied as purity ethane or as part of ethane-propane mix. Ethane is primarily used in the petrochemical industry as feedstock for ethylene, one of the basic building blocks for a wide range of plastics and other chemical products. Although ethane is typically extracted as part of the mixed NGL stream at natural gas processing plants, if natural gas prices increase significantly in relation to NGL product prices or if the demand for ethylene falls, it may be more profitable for natural gas processors to leave the ethane in the natural gas stream. Such "ethane rejection" reduces the volume of NGLs delivered for fractionation and marketing.
- Propane. Propane is used as a petrochemical feedstock in the production of ethylene and propylene, as a heating, engine, and industrial fuel, and in agricultural applications such as crop drying. Changes in demand for ethylene and propylene could adversely affect demand for propane. The demand for propane as a heating fuel is significantly affected by weather conditions. The volume of propane sold is at its highest during the six-month peak heating season of October through March. Demand for our propane may be reduced during periods of warmer-than-normal weather.
- Normal Butane. Normal butane is used in the production of isobutane, as a refined product blending component, as a fuel gas, and in the production of ethylene and propylene. Changes in the composition of refined products resulting from governmental regulation, changes in feedstocks, products, and economics, demand for heating fuel and for ethylene and propylene could adversely affect demand for normal butane.
- Isobutane. Isobutane is predominantly used in refineries to produce alkylates to enhance octane levels. Accordingly, any action that reduces demand for motor gasoline or demand for isobutane to produce alkylates for octane enhancement might reduce demand for isobutane.
- Natural Gasoline. Natural gasoline is used as a blending component for certain refined products and as a feedstock used in the production of ethylene and propylene. Changes in the mandated composition resulting from governmental regulation of motor gasoline and in demand for ethylene and propylene could adversely affect demand for natural gasoline.
NGLs and products produced from NGLs are sold in competitive global markets. Any reduced demand for ethane, propane, normal butane, isobutane, or natural gasoline in the markets we access for any of the reasons stated above could adversely affect demand for the services we provide as well as NGL prices, which would negatively impact our financial condition, results of operations, or cash flows.
Demand - Risk 3
We are dependent on certain large customers for a substantial portion of the natural gas that we gather, process, and transport. The loss of any of these customers would adversely affect our financial condition, results of operations, or cash flows.We are dependent on certain large customers for a substantial portion of our natural gas supply, including those customers described under ‘Business – Credit Risk and Key Customers." We expect to derive a significant portion of our revenues and adjusted gross margin from those customers for the foreseeable future. As a result, any development, whether in our area of operations or otherwise, that adversely affects their production, financial condition, leverage, market reputation, liquidity, results of operations, or cash flows may adversely affect our revenues and cash available for distribution.
Demand - Risk 4
Any decrease in the volumes that we gather, process, fractionate, or transport would adversely affect our financial condition, results of operations, or cash flows.Our financial performance depends to a large extent on the volumes of natural gas, crude oil, condensate, and NGLs gathered, processed, fractionated, and transported on our assets. Decreases in the volumes of natural gas, crude oil, condensate,and NGLs we gather, process, fractionate, or transport would directly and adversely affect our financial condition. These volumes can be influenced by factors beyond our control, including:
- continued fluctuations in commodity prices, including the prices of natural gas, NGLs, crude oil, and condensate;- environmental or other governmental regulations;- weather conditions, including the impact of hurricanes and winter storms;- increases in storage levels of natural gas, NGLs, crude oil, and condensate;- increased use of alternative energy sources;- decreased demand for natural gas, NGLs, crude oil, and condensate;- economic conditions,- supply disruptions;- availability of supply connected to our systems; and - availability and adequacy of infrastructure to gather and process supply into and out of our systems.
The volumes of natural gas, crude oil, condensate, and NGLs gathered, processed, fractionated, and transported on our assets also depend on the production from the regions that supply our systems. Supply of natural gas, crude oil, condensate, and NGLs can be affected by many of the factors listed above, including commodity prices and weather. In order to maintain or increase throughput levels on our systems, we must obtain new sources of natural gas, crude oil, condensate, and NGLs. The primary factors affecting our ability to obtain non-dedicated sources of natural gas, crude oil, condensate, and NGLs include (i) the level of successful leasing, permitting, and drilling activity in our areas of operation, (ii) our ability to compete for volumes from new wells and (iii) our ability to compete successfully for volumes from sources connected to other pipelines. We have no control over the level of drilling activity in our areas of operation, the amount of reserves associated with wells connected to our systems, or the rate at which production from a well declines. In addition, we have no control over producers or their drilling or production decisions, which are affected by, among other things, the availability and cost of capital, levels of reserves, availability of drilling rigs, and other costs of production and equipment.
Sales & Marketing3 | 4.8%
Sales & Marketing - Risk 1
We are exposed to the credit risk of our customers and counterparties, and a general increase in the nonpayment and nonperformance by our customers could have an adverse effect on our financial condition, results of operations, or cash flows.Sales & Marketing - Risk 2
We may not be able to retain existing customers or acquire new customers, which would reduce our revenues and limit our future profitability.The renewal or replacement of existing contracts with our customers at rates sufficient to maintain current revenues and cash flows depends on a number of factors beyond our control, including the price of, and demand for, crude oil, condensate, NGLs, and natural gas in the markets we serve and competition from other midstream service providers. Our competitors include companies larger than we are, which could have both a lower cost of capital and a greater geographic coverage, as well as companies smaller than we are, which could have lower total cost structures. In addition, competition is increasing in some markets that have been overbuilt, resulting in an excess of midstream energy infrastructure capacity, or where new market entrants are willing to provide services at a discount in order to establish relationships and gain a foothold. The inability of our management to renew or replace our current contracts as they expire and to respond appropriately to changing market conditions could have a negative effect on our profitability.
In particular, our ability to renew or replace our existing contracts with industrial end-users and utilities impacts our profitability. As a consequence of the increase in competition in the industry and volatility of natural gas prices, industrial end-users and utilities may be reluctant to enter into long-term purchase contracts. Many industrial end-users purchase natural gas from more than one natural gas company and have the ability to change providers at any time. Some of these industrial end-users also have the ability to switch between natural gas and alternate fuels in response to relative price fluctuations in the market. Because there are numerous companies of greatly varying size and financial capacity that compete with us in marketing natural gas, we often compete in the industrial end-user and utilities markets primarily on the basis of price.
Sales & Marketing - Risk 3
We may not be successful in balancing our purchases and sales.We are a party to certain long-term natural gas, NGL, crude oil, and condensate sales commitments that we satisfy through supplies purchased under long-term natural gas, NGL, crude oil, and condensate purchase agreements. When we enter into those arrangements, our sales obligations generally match our purchase obligations. However, over time, the supplies that we have under contract may decline due to reduced drilling or other causes, and we may be required to satisfy the sales obligations by purchasing additional natural gas at prices that may exceed the prices received under the sales commitments. In addition, a producer could fail to deliver contracted volumes or deliver in excess of contracted volumes, or a consumer could purchase more or less than contracted volumes. Any of these actions could cause our purchases and sales not to be balanced. If our purchases and sales are not balanced, we will face increased exposure to commodity price risks and could have increased volatility in our operating income.
We have made commitments to purchase natural gas in production areas based on production-area indices and to sell the natural gas into market areas based on market-area indices, pay the costs to transport the natural gas between the two points, and capture the difference between the indices as margin. Changes in the index prices relative to each other (also referred to as basis spread) can significantly affect our margins or even result in losses.
Macro & Political
Total Risks: 2/62 (3%)Above Sector Average
Economy & Political Environment1 | 1.6%
Economy & Political Environment - Risk 1
Sustained geopolitical conflicts, military action and civil unrest could result in disruptions to the global supply chain and uncertain economic conditions, which could materially adversely affect our financial condition, results of operations, or cash flows, as well as heighten a number of the risk factors discussed in this report.Natural and Human Disruptions1 | 1.6%
Natural and Human Disruptions - Risk 1
Our business is subject to a number of weather-related risks. These weather conditions can cause significant damage and disruption to our operations and adversely impact our financial condition, results of operations, or cash flows.Tech & Innovation
Total Risks: 1/62 (2%)Above Sector Average
Cyber Security1 | 1.6%
Cyber Security - Risk 1
A failure in our computer systems or a terrorist or cyberattack on us, or third parties with whom we have a relationship, may adversely affect our ability to operate our business.See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.
FAQ
What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
How do companies disclose their risk factors?
Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
How can I use TipRanks risk factors in my stock research?
Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
A simplified analysis of risk factors is unique to TipRanks.
What are all the risk factor categories?
TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
1. Financial & Corporate
- Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
- Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
- Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
- Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
2. Legal & Regulatory
- Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
- Regulation – risks related to compliance, GDPR, and new legislation.
- Environmental / Social – risks related to environmental regulation and to data privacy.
- Taxation & Government Incentives – risks related to taxation and changes in government incentives.
3. Production
- Costs – risks related to costs of production including commodity prices, future contracts, inventory.
- Supply Chain – risks related to the company’s suppliers.
- Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
- Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
4. Technology & Innovation
- Innovation / R&D – risks related to innovation and new product development.
- Technology – risks related to the company’s reliance on technology.
- Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
- Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
5. Ability to Sell
- Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
- Competition – risks related to the company’s competition including substitutes.
- Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
- Brand & Reputation – risks related to the company’s brand and reputation.
6. Macro & Political
- Economy & Political Environment – risks related to changes in economic and political conditions.
- Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
- International Operations – risks related to the global nature of the company.
- Capital Markets – risks related to exchange rates and trade, cryptocurrency.