Another Record Year
Our system of midstream energy assets transported a record 2.1 million barrels per day ("BPD") of NGLs, crude oil and petrochemicals and 8.9 trillion British thermal units per day ("TBtu/d") of natural gas. The partnership increased its NGL fractionation volumes to a record 429,000 BPD. In addition, Enterprise's equity NGL production, the NGLs that we earn title to by providing natural gas processing services, increased to a record 108,000 BPD. These record volumes led to a significant increase in earnings and cash flow. Gross operating margin for 2008 increased by 38 percent to a record $2.1 billion while net income increased 79 percent to a record $954 million despite approximately $125 million of negative effects due to estimated lost business and property damage expense as a result of Hurricanes Gustav and Ike.
Gross operating margin for our NGL Pipelines and Services segment increased by approximately 60 percent to a record $1.3 billion. This segment benefited from the completion of construction and commencement of operations at several large capital projects, including our Meeker and Pioneer natural gas processing plants in the Rocky Mountains, the expansion of our Mid-America NGL pipeline system and our Hobbs NGL fractionator. This segment also benefited from strong natural gas processing margins as demand for NGLs increased as an attractive alternative to higher cost crude oil derivatives. In our natural gas processing business, we hedged the margins related to approximately 80 percent of our 2008 equity NGL production at very attractive margins, but frankly left some upside on the table as energy prices increased to historic levels in the first half of the year. We believe our decision to hedge was appropriate to limit the earnings variability of this business. We have taken similar actions to hedge approximately 70 percent of our expected 2009 equity NGL production at margins that are significantly higher than those in early 2009.
Our Onshore Natural Gas Pipelines and Services segment reported a 23 percent increase in gross operating margin to $411 million on a 13 percent increase in volumes transported by our pipelines. Our NGL and natural gas marketing groups did an excellent job of adding value and increasing volumes through our network of assets.
Distributable cash flow for 2008 increased 38 percent to a record $1.4 billion. This growth supported four distribution increases during the year. Our distributions declared with respect to 2008 increased 7 percent to $2.08 per unit from $1.95 per unit in 2007. In addition, Enterprise retained approximately $313 million, or 22 percent, of distributable cash flow to reinvest in growth capital projects, retire debt and partially avoid the effects of higher costs of capital due to the volatility in the financial markets.
Our financial objectives are the same today as they were when we completed our initial public offering 10 years ago:
- to invest in growth opportunities to build or acquire energy infrastructure that will generate returns on investment greater than our cost of capital to create economic value;
- to provide our partners with periodic increases in cash distributions and an attractive total return on their investment; and
- to preserve our financial flexibility and maintain an investment grade balance sheet as we pursue our goals.
We have a history of balancing distribution growth with the retention of distributable cash flow. Since 1998, Enterprise has generated $6.1 billion of distributable cash flow. The partnership has paid aggregate distributions of $4.6 billion to our limited partners over 42 consecutive quarters. We have increased the distribution rate 27 times by a total of 136 percent, including distribution increases in each of the last 18 consecutive quarters. We also retained approximately $900 million, or 15 percent, of Enterprise's total distributable cash flow. We have used this retained capital to invest in the growth of the partnership, to retire debt, to limit the need to issue new equity, as well as to insulate our partners from earnings variability in some of our businesses.
