Energy Transfer LP

Greetings and welcome to Energy Transfer Second Quarter Earnings Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Long, Chief Financial Officer. Thank you. You may begin.

Thank you, operator. Good afternoon, everyone, and welcome to the Energy Transfer Second Quarter 2021 Earnings Call. And thank you for joining us today. I'm also joined today by Mackie McCree and other members of our senior management team who are here to help answer your questions after our prepared remarks. Hopefully you saw our press release we issued earlier this afternoon, as well as the slides posted to our website. As a reminder, we will be making forward-looking statements within the meaning of Section 21E of the Security Exchange Act of 1934. These statements are based on our current beliefs, as well as certain assumptions and information currently available to us, and are discussed in more detail in our quarterly report on Form 10Q for the quarter ended June 30, 2021, which we expect to be filed this Thursday, August 5th. I'll also refer to adjusted EBITDA and distributable cash flow or DCF, all of which are non-GAAP financial measures. You'll find a reconciliation of our non-GAAP measures on our website. I'd like to start today by looking at some of our second quarter highlights. We generated adjusted EBITDA of $2.6 billion and DCF attributable to the partners of ET as adjusted of $1.4 billion. Our excess cash flow after distributions was approximately $980 million. On an incurred basis, we had excess DCF of approximately $625 million after distributions of $414 million and growth capital of approximately $355 million. The increased results over the second quarter of 2020 were primarily due to higher earnings in the midstream and trust aid and NGL and refined product segments. Switching gears to an update on the acquisition of Enable Midstream Partners, which will provide increased scale in the Mid-Continent and Arklatex regions and improve connectivity for our natural gas and NGL transportation customers. In May, the acquisition was approved by Enable unit holders, and the only remaining condition to closing is obtaining HSR clearance. The FTC has issued requests for additional information and documentary material, commonly known as second requests, which extended the HSR waiting period. Energy Transfer and Enable are working diligently to provide the relevant information to the FTC and have engaged in constructive dialogue with them throughout this process. We continue to believe that the FTC will grant unconditional clearance of the transaction. and that we will close the transaction in the second half of 2021. I'll now walk you through recent developments on our major growth projects, and we'll start with our Cushing to Needland pipeline. In early June, we commenced joint tariff service to provide crude oil transportation from our Cushing terminal to our Needland terminal. This project also provides the capability to deliver Powder River and DJ Basin barrels to our Needland terminal via an upstream connection with our White Cliffs pipeline. We are now capable of transporting approximately 65,000 barrels per day of oil from the DJ Basin and Cushing area to Needland, and we're seeing a steady growth in volumes. The first phase of this project is fully contracted with a large majority of those contracts coming from third-party shippers. In addition to customer demand, we are moving forward with phase two of this project, which will increase the capacity to 120,000 barrels per day. Phase two is expected to be in service in the first quarter of 2022 and is underpinned by third-party commitments. Minimal capital spend is required for this project. Next, construction of the Ted Collins link is progressing and we continue to expect it to be in service the fourth quarter of 2021 upon initial completion this project will provide crude oil transportation up to 150 000 barrels per day from west texas and netherlands to our houston terminal which can be expanded to 300 000 barrels per day now looking to dakota access in may the dc district court denied the plaintiff's motion for an injunction to shut down dakota access and thereafter dismissed the plaintiff's lawsuit against the Army Corps. We continue to cooperate with the Army Corps in their preparation of the environmental impact statement. We recently placed the next phase of incremental capacity for the Bakken Pipeline Optimization Project into service, which is supported by minimum volume commitments from long-term customers. With completion of this phase of the optimization, Dakota Access now has the ability to flow approximately 750,000 barrels per day. Let's take a look at our Mariner East system. Second quarter 2021, NGL volumes through the Mariner East pipeline system increased approximately 15% over the second quarter of 2020. Our Pennsylvania access project, which will allow refined products to flow from the Midwest supply regions into Pennsylvania, New York, and other markets in the Northeast, is ready for service when markets dictate. We now expect the next significant phase of the Mariner East projects to be in service in the third quarter of 2021, and the final phase of the Mariner East pipeline is expected to be completed in the fourth quarter of 2021. Today, we are seeing demand exceed our current throughput capacity, which will allow us to begin utilizing additional capacity as our next phase of Mariner East is brought online later this year. Now a brief update on our Nederland terminal. During the second quarter, we completed the remaining expansions of our LPG facilities at Nederland. With the addition of our LPG and ethane expansions completed in late 2020 and early 2021, we are now capable of exporting approximately 700,000 barrels per day of NGLs from our Nederland terminal. And when combined with our export capabilities from our Marcus Hook terminal, as well as our Mariner West pipeline, which exports more than 55,000 barrels per day of ethane to Canada, our total NGL export capacity is now over 1.1 million barrels per day, which is among the largest in the world. In fact, in May and June, we exported more NGLs than any other company or country in the world. with our daily throughput averaging over 850,000 barrels per day in June. We see an increasing need for products in markets beyond North America and we are striving to meet this need with our growing export business. At our expanded needle and terminal, volumes have continued to increase throughout the first half of this year and we expect them to continue to increase throughout the remainder of 2021. And export volumes under our Orbit ethane export joint venture have seen strong growth. Through June, we loaded more than 9 million barrels of ethane out of this facility since placing it into service. Our Permian Bridge project, which will connect our gathering and processing assets in the Delaware Basin with our GMP assets in the Midland Basin, is expected to be completed in the fourth quarter of 2021. This project will allow us to move approximately 115,000 MCF per day of rich gas out of the Midland Basin and operate existing capacity more efficiently while also providing access to additional takeaway options. This project is a good example of how we can preserve capital spend as we strategically look for ways to optimize, repurpose, and expand our assets to provide us with competitive advantages. Lastly, in July, we announced the signing of a memorandum of understanding with the Republic of Panama to study the feasibility of jointly developing a proposed Trans Panama Gateway Pipeline. The project would include terminals on the Pacific and Atlantic side of Panama to be connected by a pipeline for the receipt, transportation, and export of LPGs to international markets. This project would provide relief for the increasing traffic of VLGCs through the Panama Canal and provide high-volume Pacific loading optionality for customers in Asia. Now for an update on our alternative energy activities. Since we announced the creation of an alternative energy group in February, we have continued to focus on renewable energy projects. In this regard, we have finalized a second long-term power purchase agreement for 120 megawatts of solar power that we expect to sign after receipt of regulatory approval. We're also continuing to explore several opportunities for solar and wind projects on our existing acreage in the Northeast, and recently signed an agreement with a large utility company to jointly pursue solar and wind development on an energy transfer tract in Kentucky. On the carbon capture front, our Marcus Hook project continues to look promising based on preliminary cost estimates and design feasibility studies. This project would involve capturing CO2 from the flue gas and delivering it to customers who would produce food grade CO2. We're also pursuing two carbon projects near our systems, one involving the capture of CO2 from processing plants for use in enhanced oil recovery, and the second for a carbon utilization project. We're also reviewing potential equity investments in a variety of projects, including biogas and biodiesel projects that would qualify for low carbon fuel standard credits as long as they satisfy our economic return criteria. Our engineering and operations teams are constantly working to explore ways to reduce emissions across our facilities. And as we've discussed previously, our dual drive compressors continue to win environmental awards for reducing CO2 emissions by utilizing their ability to run off electric power as well as natural gas. An important distinction for our dual drive compressors versus all electric compressors is that dual drive helps grid reliability as the electric demand can be volatile, especially in some remote areas of operation. In addition, we have significantly ramped up our exports of butane, propane, and ethane for power generation. They're in many cases This places diesel, wood, and animal waste, NAPSA, and other fuels, which provide for a significant reduction of CO2 emissions. Finally, we expect to publish ESG data on the Energy Infrastructure Council and GPA Midstream ESG template in the near future. And we'll also continue to address various inaccuracies in third-party ESG reports due to a lack of effort by certain third parties to discover and report accurate information. Now let's take a closer look at our second quarter results. Consolidated adjusted EBITDA was $2.6 billion compared to $2.4 billion for the second quarter of 2020. DCF attributable to the partners as adjusted was $1.4 billion for the second quarter compared to $1.3 billion for the second quarter of 2020. The increased results were primarily driven by improved earnings in the midstream, interest rate, and NGL and refined product segments. On July 22nd, we announced a quarterly cash distribution of 15 and a quarter cents per common unit or 61 cents on an annualized basis. This distribution will be paid on August 19th to unit holders of record as of the close of business on August the 6th. Turning to our results by segment, we'll start with the NGL refined products segment. Our adjusted EBITDA was $736 million compared to $674 million the same period last year. This was primarily due to higher export volumes feeding our needle and terminal, increased throughput on our Mariner East pipeline and at our Marcus Hub terminal, as well as increased storage and fractionation and refinery services margin. NGL transportation volumes on our wholly owned and joint venture pipelines increased to 1.7 million barrels per day compared to 1.4 million barrels per day for the same period last year. This increase was primarily due to increased export volumes feeding into our needle and terminal from the initiation of service on our propane and ethane export projects, as well as increased volumes on our Mariner East pipeline system. On our fractionators, average fractionated volumes was 833,000 barrels per day compared to 836,000 barrels per day for the second quarter of 2020. Since the end of the second quarter, transportation and fractionation volumes have continued to increase. For our crude oil segment, adjusted EBITDA was $484 million compared to $519 million for the same period last year. This was primarily due to lower average tariff rates on our Texas crude oil pipeline system, as well as decrease in our crude oil acquisition and marketing business. We did see higher volumes on our Bakken and Bayou Bridge pipelines which have improved from the lows of last year. We have now seen the majority of the major contract roll-offs on our Permian Express system, and we'll look to capture better margins going forward as the market improves. For Midstream, adjusted EBITDA was $477 million compared to $367 million for the second quarter of 2020. This was largely the result of favorable NGL and natural gas prices. as well as volume growth across most of our regions and the ramp up of recently completed assets in the Northeast. Gathered gas volumes were 13.1 million MMBTUs per day compared to 13 million MMBTUs per day for the same period last year due to higher volumes in the Permian, Arklatex, South and North Texas regions as they continued to improve from lows seen last year. Permian basin volumes have remained strong, and Midland Inlet volumes continue to be at or near record highs. In our interstate segment, adjusted EBITDA was $331 million compared to $403 million for the second quarter of 2020, primarily due to contract expirations on Tiger and FEP, as well as a shipper bankruptcy on Tiger, partially offset by an increase in transported volumes on rovers. And for our intrastate segment, adjusted EBITDA was $224 million compared to $187 million in the second quarter of last year. This was primarily due to demand volume ramp-ups in the permanent and an increase in retained fuel revenues, as well as a $39 million increase from revenues related to Winter Storm URI. There is no doubt that URI created much more demand for our pipeline and storage networks, And we are seeing this reflected in incoming calls and discussions with existing and new customers who are looking to lock in firm transport and or storage agreements. Now turning to our 2021 adjusted EBITDA guidance, we continue to expect a full year adjusted EBITDA to be between $12.9 billion to $13.3 billion, excluding any contribution from the announced enable acquisitions. And moving to a growth capital update, the six months into June 30th, 2021, energy transfer spent $715 million on organic growth projects, primarily in the NGL and refined product segment, excluding sun and USA compression CapEx. For full year 2021, we continue to expect growth capital expenditures to be approximately $1.6 billion, primarily in the NGL and refined products segment. midstream, and crude oil segments. We continue to focus on aligning capital outlay with customer needs and remain disciplined in regard to all spending. Any new projects are primarily expected to be focused on improving optionality around our existing assets. And for 2022 and 2023, we continue to expect spend of approximately $500 to $700 million per year. Now looking briefly at our liquidity position, as of June 30, 2021, total available liquidity on our revolving credit facility was approximately $5 billion, and our leverage ratio was 3.14 for our credit facility. During the second quarter, we utilized cash from operations and proceeds from a $900 million Series H preferred unit offering to reduce our outstanding debt by approximately $1.5 billion. And year to date, we have reduced our long-term debt by $5.2 billion. And in May of this year, S&P and Moody's affirmed our credit ratings of BBB- and BAA3, respectively, and both revised our outlook to stable from negative. In addition, in April, we removed a layer of organizational complexity with the roll-up of Energy Transfer Operating Company into Energy Transfer. During the second quarter, we continued to see improved fundamentals, and the completion of our NGL expansions at Needland has positioned us as one of the leading exporters of NGLs in the world. We expect our LPG and ethane export projects at our Needland terminal to further ramp up throughout the rest of this year Capital discipline and deleveraging continue to be among our top priorities, and we continue to pay down debt in the second quarter. We remain committed to maintaining and improving our investment grade rating. And we will look to return additional capital to unit holders in the form of unit buybacks and or distribution increases, with the mix dependent upon our analysis of market conditions at the time. We also continue to explore development of alternative energy projects, and opportunities to reduce our environmental footprint, some of which are looking very promising. And we hope to be announcing additional projects shortly. Operator, please open the line up for our first question.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line Ocean Hour Gershoni with UBS. Please proceed with your question.