Energy Transfer Reports Second Quarter 2019 Results

  • Net income attributable to partners of $878 million, reflecting an increase over previous period primarily due to higher operating income and the impact of the simplification transaction.
  • Record Adjusted EBITDA of $2.82 billion, up 25 percent from the second quarter of 2018.
  • Distributable Cash Flow attributable to partners of $1.60 billion, up 23 percent from the second quarter of 2018.
  • Distribution coverage ratio of 2.00x, yielding excess coverage of $800 million of Distributable Cash Flow attributable to partners in excess of distributions.
  • Increases 2019 outlook for Adjusted EBITDA to approximately $10.8 billion to $11.0 billion and reduces capital expenditures to approximately $4.6 billion to $4.8 billion.

DALLAS–(BUSINESS WIRE)–Energy Transfer LP (NYSE:ET) (“ET” or the “Partnership”) today reported financial results for the quarter ended June 30, 2019.

ET reported net income attributable to partners for the three months ended June 30, 2019 of $878 million, an increase of $523 million compared to the three months ended June 30, 2018. For the prior period, net income attributable to partners continues to reflect only the amount of net income attributable to the legacy Energy Transfer LP partners prior to the simplification merger transaction of ET and Energy Transfer Operating, L.P. (“ETO”) on October 19, 2018 (the “Merger”).

Adjusted EBITDA for the three months ended June 30, 2019 was $2.82 billion, an increase of $562 million compared to the three months ended June 30, 2018. Results were supported by significant increases in four of the Partnership’s five core segments, with record operating performance in the Partnership’s NGL and refined products segment.

Distributable Cash Flow attributable to partners, as adjusted, for the three months ended June 30, 2019 was $1.60 billion, an increase of $301 million compared to the three months ended June 30, 2018. The increase was primarily due to the increase in Adjusted EBITDA.

Key accomplishments and current developments:

Operational

  • ET announces its eighth natural gas liquids (NGL) fractionation facility at Mont Belvieu, Texas. Fractionator VIII will be a 150,000 barrel per day fractionator that is scheduled to be in service in the second quarter of 2021. With the addition of Fractionator VIII, ET will have more than one million barrels per day of fractionation capacity at Mont Belvieu.
  • ET announced a binding supplemental open season in July 2019 to solicit additional shipper commitments that would further support a capacity optimization on the Bakken pipeline system.
  • The Permian Express 4 expansion is ongoing, and ET expects to have the project, which adds 120,000 barrels per day of capacity from the Permian Basin to Gulf Coast markets, in-service by the end of the third quarter of 2019.
  • ET and Sunoco LP closed on the JC Nolan Pipeline joint venture in July 2019 and successfully commissioned the diesel fuel pipeline in West Texas this week.
  • Construction is ongoing at ET’s ethane storage tank and chilling facilities in Nederland, Texas with an expected in-service date in the fourth quarter of 2020.

Strategic

  • ET opened an office in Beijing in April and continues to expand its international marketing efforts to meet growing demand for LNG and NGL products.

Financial

  • In July 2019, ET announced a quarterly distribution of $0.305 per unit ($1.220 annualized) on ET common units for the quarter ended June 30, 2019. The distribution coverage ratio for the second quarter of 2019 is 2.00x.
  • As of June 30, 2019, ETO’s $6.00 billion revolving credit facilities had an aggregate $3.56 billion of available capacity, and ETO’s leverage ratio, as defined by its credit agreement, was 3.61x.

ET benefits from a portfolio of assets with exceptional product and geographic diversity. The Partnership’s multiple segments generate high-quality, balanced earnings with no single segment contributing more than 30 percent of the Partnership’s consolidated Adjusted EBITDA for the three months ended June 30, 2019. The great majority of the Partnership’s segment margins are fee-based and therefore have limited commodity price sensitivity.

Conference Call information:

The Partnership has scheduled a conference call for 8:00 a.m. Central Time, Thursday, August 8, 2019 to discuss its second quarter 2019 results. The conference call will be broadcast live via an internet webcast, which can be accessed through www.energytransfer.com and will also be available for replay on the Partnership’s website for a limited time.

Energy Transfer LP (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all of the major domestic production basins. ET is a publicly traded limited partnership with core operations that include complementary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, NGL and refined product transportation and terminalling assets; NGL fractionation; and various acquisition and marketing assets. ET, through its ownership of Energy Transfer Operating, L.P., also owns Lake Charles LNG Company, as well as the general partner interests, the incentive distribution rights and 28.5 million common units of Sunoco LP (NYSE: SUN), and the general partner interests and 46.1 million common units of USA Compression Partners, LP (NYSE: USAC). For more information, visit the Energy Transfer LP website at www.energytransfer.com.

Sunoco LP (NYSE: SUN) is a master limited partnership with core operations that include the distribution of motor fuel to approximately 10,000 convenience stores, independent dealers, commercial customers and distributors located in more than 30 states, as well as refined product transportation and terminalling assets. SUN’s general partner is owned by Energy Transfer Operating, L.P., a subsidiary of Energy Transfer LP (NYSE: ET). For more information, visit the Sunoco LP website at www.sunocolp.com.

USA Compression Partners, LP (NYSE: USAC) is a growth-oriented Delaware limited partnership that is one of the nation’s largest independent providers of compression services in terms of total compression fleet horsepower. USAC partners with a broad customer base composed of producers, processors, gatherers and transporters of natural gas and crude oil. USAC focuses on providing compression services to infrastructure applications primarily in high-volume gathering systems, processing facilities and transportation applications. For more information, visit the USAC website at www.usacompression.com.

Forward-Looking Statements

This news release may include certain statements concerning expectations for the future that are forward-looking statements as defined by federal law. Such forward-looking statements are subject to a variety of known and unknown risks, uncertainties, and other factors that are difficult to predict and many of which are beyond management’s control. An extensive list of factors that can affect future results are discussed in the Partnership’s Annual Report on Form 10-K and other documents filed from time to time with the Securities and Exchange Commission. The Partnership undertakes no obligation to update or revise any forward-looking statement to reflect new information or events.

The information contained in this press release is available on our website at www.energytransfer.com.

 

ENERGY TRANSFER LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(unaudited)

 

 

June 30, 2019

 

December 31, 2018

ASSETS

 

 

 

Current assets

$

7,198

 

 

$

6,750

 

 

 

 

 

Property, plant and equipment, net

68,187

 

 

66,963

 

 

 

 

 

Advances to and investments in unconsolidated affiliates

2,838

 

 

2,642

 

Lease right-of-use assets, net (a)

853

 

 

 

Other non-current assets, net

1,026

 

 

1,006

 

Intangible assets, net

5,827

 

 

6,000

 

Goodwill

4,883

 

 

4,885

 

Total assets

$

90,812

 

 

$

88,246

 

LIABILITIES AND EQUITY

 

 

 

Current liabilities

$

6,429

 

 

$

9,310

 

 

 

 

 

Long-term debt, less current maturities

46,499

 

 

43,373

 

Non-current derivative liabilities

354

 

 

104

 

Non-current operating lease liabilities (a)

803

 

 

 

Deferred income taxes

3,071

 

 

2,926

 

Other non-current liabilities

1,139

 

 

1,184

 

 

 

 

 

Commitments and contingencies

 

 

 

Redeemable noncontrolling interests

500

 

 

499

 

 

 

 

 

Equity:

 

 

 

Total partners’ capital

20,834

 

 

20,559

 

Noncontrolling interests

11,183

 

 

10,291

 

Total equity

32,017

 

 

30,850

 

Total liabilities and equity

$

90,812

 

 

$

88,246

 

(a)

Lease-related balances as of June 30, 2019 were recorded in connection with the required adoption of the new lease accounting principles (referred to as ASC 842) on January 1, 2019.

ENERGY TRANSFER LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per unit data)

(unaudited)

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2019

 

2018

 

2019

 

2018

REVENUES

$

13,877

 

 

$

14,118

 

 

$

26,998

 

 

$

26,000

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

Cost of products sold

10,302

 

 

11,343

 

 

19,717

 

 

20,588

 

Operating expenses

792

 

 

772

 

 

1,600

 

 

1,496

 

Depreciation, depletion and amortization

785

 

 

694

 

 

1,559

 

 

1,359

 

Selling, general and administrative

179

 

 

183

 

 

326

 

 

331

 

Impairment losses

 

 

 

 

50

 

 

 

Total costs and expenses

12,058

 

 

12,992

 

 

23,252

 

 

23,774

 

OPERATING INCOME

1,819

 

 

1,126

 

 

3,746

 

 

2,226

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

Interest expense, net of interest capitalized

(578

)

 

(510

)

 

(1,168

)

 

(976

)

Equity in earnings of unconsolidated affiliates

77

 

 

92

 

 

142

 

 

171

 

Losses on extinguishments of debt

 

 

 

 

(18

)

 

(106

)

Gains (losses) on interest rate derivatives

(122

)

 

20

 

 

(196

)

 

72

 

Other, net

46

 

 

(1

)

 

42

 

 

56

 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE

1,242

 

 

727

 

 

2,548

 

 

1,443

 

Income tax expense from continuing operations

34

 

 

68

 

 

160

 

 

58

 

INCOME FROM CONTINUING OPERATIONS

1,208

 

 

659

 

 

2,388

 

 

1,385

 

Loss from discontinued operations, net of income taxes

 

 

(26

)

 

 

 

(263

)

NET INCOME

1,208

 

 

633

 

 

2,388

 

 

1,122

 

 

Less: Net income attributable to noncontrolling interests

317

 

 

278

 

 

614

 

 

404

 

Less: Net income attributable to redeemable noncontrolling interests

13

 

 

 

 

26

 

 

 

NET INCOME ATTRIBUTABLE TO PARTNERS

878

 

 

355

 

 

1,748

 

 

718

 

Series A Convertible Preferred Unitholders’ interest in income

 

 

12

 

 

 

 

33

 

General Partner’s interest in net income

1

 

 

1

 

 

2

 

 

2

 

Limited Partners’ interest in net income

$

877

 

 

$

342

 

 

$

1,746

 

 

$

683

 

NET INCOME PER LIMITED PARTNER UNIT:

 

 

 

 

 

 

 

Basic

$

0.33

 

 

$

0.31

 

 

$

0.67

 

 

$

0.62

 

Diluted

$

0.33

 

 

$

0.31

 

 

$

0.66

 

 

$

0.62

 

WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING:

 

 

 

 

 

 

 

Basic

2,621.2

 

 

1,114.8

 

 

2,620.3

 

 

1,097.1

 

Diluted

2,631.0

 

1,158.2

 

2,630.1

 

1,158.2

ENERGY TRANSFER LP AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

(Dollars and units in millions)

(unaudited)

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2019

 

2018

 

2019

 

2018

Reconciliation of net income to Adjusted EBITDA and Distributable Cash Flow (b):

 

 

 

 

 

 

 

Net income

$

1,208

 

 

$

633

 

 

$

2,388

 

 

$

1,122

 

Loss from discontinued operations

 

 

26

 

 

 

 

263

 

Interest expense, net of capitalized interest

578

 

 

510

 

 

1,168

 

 

976

 

Impairment losses

 

 

 

 

50

 

 

 

Income tax expense from continuing operations

34

 

 

68

 

 

160

 

 

58

 

Depreciation, depletion and amortization

785

 

 

694

 

 

1,559

 

 

1,359

 

Non-cash compensation expense

29

 

 

32

 

 

58

 

 

55

 

Losses (gains) on interest rate derivatives

122

 

 

(20

)

 

196

 

 

(72

)

Unrealized losses (gains) on commodity risk management activities

23

 

 

265

 

 

(26

)

 

352

 

Losses on extinguishments of debt

 

 

 

 

18

 

 

106

 

Inventory valuation adjustments

(4

)

 

(32

)

 

(97

)

 

(57

)

Equity in earnings of unconsolidated affiliates

(77

)

 

(92

)

 

(142

)

 

(171

)

Adjusted EBITDA related to unconsolidated affiliates

163

 

 

168

 

 

309

 

 

324

 

Adjusted EBITDA from discontinued operations

 

 

(5

)

 

 

 

(25

)

Other, net

(37

)

 

15

 

 

(20

)

 

(26

)

Adjusted EBITDA (consolidated)

2,824

 

 

2,262

 

 

5,621

 

 

4,264

 

Adjusted EBITDA related to unconsolidated affiliates

(163

)

 

(168

)

 

(309

)

 

(324

)

Distributable cash flow from unconsolidated affiliates

107

 

 

99

 

 

200

 

 

203

 

Interest expense, net of capitalized interest

(578

)

 

(510

)

 

(1,168

)

 

(978

)

Preferred unitholders’ distributions

(64

)

 

(41

)

 

(117

)

 

(65

)

Current income tax (expense) benefit

7

 

 

27

 

 

(21

)

 

(441

)

Transaction-related income taxes

 

 

(10

)

 

 

 

470

 

Maintenance capital expenditures

(170

)

 

(126

)

 

(262

)

 

(217

)

Other, net

19

 

 

7

 

 

37

 

 

14

 

Distributable Cash Flow (consolidated)

1,982

 

 

1,540

 

 

3,981

 

 

2,926

 

Distributable Cash Flow attributable to Sunoco LP (100%)

(101

)

 

(99

)

 

(198

)

 

(183

)

Distributions from Sunoco LP

41

 

 

41

 

 

82

 

 

82

 

Distributable Cash Flow attributable to USAC (100%)

(54

)

 

(46

)

 

(109

)

 

(46

)

Distributions from USAC

21

 

 

31

 

 

42

 

 

31

 

Distributable Cash Flow attributable to noncontrolling interests in other non-wholly-owned consolidated subsidiaries

(293

)

 

(181

)

 

(544

)

 

(328

)

Distributable Cash Flow attributable to the partners of ET – pro forma for the Merger (a)

1,596

 

 

1,286

 

 

3,254

 

 

2,482

 

Transaction-related adjustments

5

 

 

14

 

 

3

 

 

13

 

Distributable Cash Flow attributable to the partners of ET, as adjusted – pro forma for the Merger (a)

$

1,601

 

 

$

1,300

 

 

$

3,257

 

 

$

2,495

 

Distributions to partners – pro forma for the Merger (a):

 

 

 

 

 

 

 

Limited Partners (c)

$

800

 

 

$

798

 

 

$

1,599

 

 

$

1,507

 

General Partner

1

 

 

1

 

 

2

 

 

2

 

Total distributions to be paid to partners

$

801

 

 

$

799

 

 

$

1,601

 

 

$

1,509

 

Common Units outstanding – end of period – pro forma for the Merger (a)

2,623.2

 

 

2,616.0

 

 

2,623.2

 

 

2,616.0

 

Distribution coverage ratio – pro forma for the Merger (a)

 

2.00x

 

 

 

1.63x

 

 

 

2.03x

 

 

 

1.65x

 

(a)

The closing of the Merger has impacted the Partnership’s calculation of Distributable Cash Flow attributable to partners, as well as the number of ET Common Units outstanding and the amount of distributions to be paid to partners for the three and six months ended June 30, 2018. In order to provide information on a comparable basis for pre-Merger and post-Merger periods, the Partnership has included certain pro forma information for the three and six months ended June 30, 2018.

 

 

Pro forma Distributable Cash Flow attributable to partners reflects the following merger related impacts:

 

  • ETO is reflected as a wholly-owned subsidiary and pro forma Distributable Cash Flow attributable to partners reflects ETO’s consolidated Distributable Cash Flow (less certain other adjustments);
  • Distributions from Sunoco LP and USAC include distributions to both ET and ETO; and
  • Distributable Cash Flow attributable to noncontrolling interests in our other non-wholly-owned subsidiaries is subtracted from consolidated Distributable Cash Flow to calculate Distributable Cash Flow attributable to partners.

 

Pro forma distributions to partners include actual distributions to legacy ET partners, as well as pro forma distributions to legacy ETO partners. Pro forma distributions to ETO partners are calculated assuming (i) historical ETO common units converted under the terms of the Merger and (ii) distributions on such converted common units were paid at the historical rate paid on ET Common Units.

 

 

Pro forma Common Units outstanding include actual Common Units outstanding, in addition to Common Units assumed to be issued in the Merger, which are based on historical ETO common units converted under the terms of the Merger.

 

(b)

Adjusted EBITDA, Distributable Cash Flow and distribution coverage ratio are non-GAAP financial measures used by industry analysts, investors, lenders and rating agencies to assess the financial performance and the operating results of ET’s fundamental business activities and should not be considered in isolation or as a substitute for net income, income from operations, cash flows from operating activities or other GAAP measures.

 

 

There are material limitations to using measures such as Adjusted EBITDA, Distributable Cash Flow and distribution coverage ratio, including the difficulty associated with using either as the sole measure to compare the results of one company to another, and the inability to analyze certain significant items that directly affect a company’s net income or loss or cash flows. In addition, our calculations of Adjusted EBITDA, Distributable Cash Flow and distribution coverage ratio may not be consistent with similarly titled measures of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP, such as segment margin, operating income, net income and cash flow from operating activities.

 

 

Definition of Adjusted EBITDA

 

 

We define Adjusted EBITDA as total partnership earnings before interest, taxes, depreciation, depletion, amortization and other non-cash items, such as non-cash compensation expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, inventory valuation adjustments, non-cash impairment charges, losses on extinguishments of debt and other non-operating income or expense items. Adjusted EBITDA reflects amounts for less than wholly-owned subsidiaries based on 100% of the subsidiaries’ results of operations and for unconsolidated affiliates based on our proportionate ownership.

 

 

Adjusted EBITDA is used by management to determine our operating performance and, along with other financial and volumetric data, as internal measures for setting annual operating budgets, assessing financial performance of our numerous business locations, as a measure for evaluating targeted businesses for acquisition and as a measurement component of incentive compensation.

 

 

Definition of Distributable Cash Flow

 

 

We define Distributable Cash Flow as net income, adjusted for certain non-cash items, less distributions to preferred unitholders and maintenance capital expenditures. Non-cash items include depreciation, depletion and amortization, non-cash compensation expense, amortization included in interest expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, inventory valuation adjustments, non-cash impairment charges, losses on extinguishments of debt and deferred income taxes. For unconsolidated affiliates, Distributable Cash Flow reflects the Partnership’s proportionate share of the investee’s distributable cash flow.

 

 

Distributable Cash Flow is used by management to evaluate our overall performance. Our partnership agreement requires us to distribute all available cash, and Distributable Cash Flow is calculated to evaluate our ability to fund distributions through cash generated by our operations.

 

 

On a consolidated basis, Distributable Cash Flow includes 100% of the Distributable Cash Flow of ET’s consolidated subsidiaries. However, to the extent that noncontrolling interests exist among our subsidiaries, the Distributable Cash Flow generated by our subsidiaries may not be available to be distributed to our partners. In order to reflect the cash flows available for distributions to our partners, we have reported Distributable Cash Flow attributable to partners, which is calculated by adjusting Distributable Cash Flow (consolidated), as follows:

 

  • For subsidiaries with publicly traded equity interests, other than ETO, Distributable Cash Flow (consolidated) includes 100% of Distributable Cash Flow attributable to such subsidiary, and Distributable Cash Flow attributable to our partners includes distributions to be received by the parent company with respect to the periods presented.
  • For consolidated joint ventures or similar entities, where the noncontrolling interest is not publicly traded, Distributable Cash Flow (consolidated) includes 100% of Distributable Cash Flow attributable to such subsidiaries, but Distributable Cash Flow attributable to partners reflects only the amount of Distributable Cash Flow of such subsidiaries that is attributable to our ownership interest.

 

For Distributable Cash Flow attributable to partners, as adjusted, certain transaction-related adjustments and non-recurring expenses that are included in net income are excluded.

 

 

Definition of Distribution Coverage Ratio

 

 

Distribution coverage ratio for a period is calculated as Distributable Cash Flow attributable to partners, as adjusted, divided by distributions expected to be paid to the partners of ET in respect of such period.

 

(c)

The amounts reflected for the six months ended June 30, 2018 includes distributions to unitholders who elected to participate in a plan to forgo a portion of their future potential cash distributions on common units and reinvest those distributions in ETE Series A convertible preferred units representing limited partner interests in the Partnership for the six months ended June 30, 2018. The quarter ended March 31, 2018 was the final quarter of participation in the plan.

ENERGY TRANSFER LP AND SUBSIDIARIES

SUMMARY ANALYSIS OF QUARTERLY RESULTS BY SEGMENT

(Tabular dollar amounts in millions)

(unaudited)

 

As a result of the Merger in October 2018, our reportable segments were reevaluated during the quarter ended December 31, 2018 and currently reflect the following segments.

 

 

Three Months Ended

June 30,

 

2019

 

2018

Segment Adjusted EBITDA:

 

 

 

Intrastate transportation and storage

$

290

 

 

$

208

 

Interstate transportation and storage

460

 

 

375

 

Midstream

412

 

 

414

 

NGL and refined products transportation and services

644

 

 

461

 

Crude oil transportation and services

751

 

 

548

 

Investment in Sunoco LP

152

 

 

140

 

Investment in USAC

105

 

 

95

 

All other

10

 

 

21

 

Total Segment Adjusted EBITDA

$

2,824

 

 

$

2,262

 

In the following analysis of segment operating results, a measure of segment margin is reported for segments with sales revenues. Segment margin is a non-GAAP financial measure and is presented herein to assist in the analysis of segment operating results and particularly to facilitate an understanding of the impacts that changes in sales revenues have on the segment performance measure of Segment Adjusted EBITDA. Segment margin is similar to the GAAP measure of gross margin, except that segment margin excludes charges for depreciation, depletion and amortization.

Following is a reconciliation of our segment margin to operating income, as reported in the Partnership’s consolidated statements of operations:

 

Three Months Ended

June 30,

 

2019

 

2018

Segment Margin:

 

 

 

Intrastate transportation and storage

$

365

 

 

$

267

 

Interstate transportation and storage

493

 

 

378

 

Midstream

614

 

 

593

 

NGL and refined products transportation and services

764

 

 

587

 

Crude oil transportation and services

909

 

 

442

 

Investment in Sunoco LP

269

 

 

310

 

Investment in USAC

150

 

 

147

 

All other

48

 

 

57

 

Intersegment eliminations

(37

)

 

(6

)

Total segment margin

3,575

 

 

2,775

 

 

 

 

 

Less:

 

 

 

Operating expenses

792

 

 

772

 

Depreciation, depletion and amortization

785

 

 

694

 

Selling, general and administrative

179

 

 

183

 

Operating income

$

1,819

 

 

$

1,126

 

 

Intrastate Transportation and Storage

 

Three Months Ended

June 30,

 

2019

 

2018

Natural gas transported (BBtu/d)

12,115

 

 

10,327

 

Revenues

$

765

 

 

$

813

 

Cost of products sold

400

 

 

546

 

Segment margin

365

 

 

267

 

Unrealized gains on commodity risk management activities

(26

)

 

(8

)

Operating expenses, excluding non-cash compensation expense

(47

)

 

(51

)

Selling, general and administrative expenses, excluding non-cash compensation expense

(7

)

 

(7

)

Adjusted EBITDA related to unconsolidated affiliates

5

 

 

7

 

Segment Adjusted EBITDA

$

290

 

 

$

208

 

Contacts

Energy Transfer

Investor Relations:

Bill Baerg, Brent Ratliff, Lyndsay Hannah, 214-981-0795

or

Media Relations:

Vicki Granado, 214-840-5820

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