Energy Transfer LP

Good day and welcome to the Energy Transfer Fourth Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Tom Long, Co-Chief Executive Officer. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone, and welcome to the Energy Transfer Fourth Quarter 2024 Earnings Call. I'm also joined today by Mackie McCree and other members of the Senior Management Team who are here to help answer your questions after our prepared remarks. Hopefully you saw the press release we issued earlier this afternoon. As a reminder, our earnings release contains a thorough MD&A that goes through the segments results in detail, and we encourage everyone to take a look at the release, as well as the slides posted to our website, to gain a full understanding of the quarter and our growth opportunities. As a reminder, we will be making forward-looking statements within the meaning of Section 1E of the Security Exchange Act of 1934. These statements are based upon beliefs, as well as certain assumptions and information currently available to us. and are discussed in more details in our Form 10-K for the year ended December 31st, 2024, which we expect to file this Friday, February the 14th. I'll also refer to adjusted EBITDA and Distributable Cash Flow, or DCF, both of which are non-GAAP financial measures. You will find a reconciliation of our non-GAAP on our website. Let's start today by going over the financial results for the full year 2024. adjusted EBITDA was $15.5 billion, which came in at the high end of our 2024 guidance range. This was up 13% over 2023 and was a partnership record. DCF attributable to the partners of Energy Transfer, as adjusted, was $8.4 billion, which was up 10% over 2023 and was also a partnership record. we moved record volumes across our interstate, midstream, NGL, and crude segments for the year ended 2024. In addition, we exported a record amount of total NGLs out of our Needlin and Marcus Hook terminals. For the fourth quarter of 2024, we generated adjusted EBITDA of $3.9 billion compared to $3.6 billion for the fourth quarter of 2023. We continue to see strong volumes during the fourth quarter, including increased throughput across the majority of our segments. DCF, attributable to the partners of energy transfer as adjusted, was $2 billion, consistent with the fourth quarter of 2023. And for the full year of 2024, we spent approximately $3 billion on organic growth capital, excluding sun and USA compression capex. These investments were primarily in the mid-season NGL and refined products segments. Now let's turn to the results by segment for the fourth quarter, and I'll start with NGL and refined products. Adjusted EBITDA was $1.1 billion compared to $1.04 billion for the fourth quarter of 2023. This was primarily due to higher throughput and higher rates across our Gulf Coast and Mariner East pipeline operations. It also had strong NGL exports and increased profits from the optimization of hedged NGL inventory. For midstream, adjusted EBITDA was $705 million compared to $674 million for the fourth quarter of 2023. The increase was primarily due to higher volumes in the Permian Basin, which was related to a 9% increase in legacy Permian throughput as well as the addition of the Crestwood and WTG assets in November of 23 and July of 24, respectively. This was partially offset by decreased volumes in dry gas regions as a result of low natural gas pricing and increased operating expenses from recent acquisitions. For the crude oil segment, adjusted EBITDA was $760 million compared to $775 million for the fourth quarter of 2023. During the quarter, we saw growth across our crude gathering systems, as well as contributions related to the recently formed Permian joint venture with Sun and the acquisition of Crestwood. These were offset by lower transportation revenue, primarily on the Bakken pipeline, and reduced earnings from marketing. In the interstate natural gas segment, adjusted EBITDA was $493 million, compared to $541 million for the fourth quarter of 2023. During the quarter, we saw higher demand on Panhandle, Trunk Line, Gulf Run, and FGT. This was offset by lower interruptible utilization, reduced rates on Panhandle, and increased operating expenses. And for our intrastate natural gas segment, adjusted EBITDA was $263 million compared to $242 million in the fourth quarter of last year. The increase was primarily due to increased gains related to pipeline and storage optimization opportunities. Now turning to our 2025 organic growth capital guidance and our growth projects. First, I'm pleased to say we recently approved the construction of the Mustang Draw Processing Plant in the Midland Basin. Now for our growth capital expenditures. Given our wealth of opportunities, we expect to spend approximately $5 billion in 2025. To provide more color by segment, this spend includes approximately $1.4 billion in our intrastate natural gas segment, which includes approximately $1.3 billion related to the recently approved Hugh Brinson pipeline, as well as additional spend related to small laterals and tie-in projects supporting new demand growth on our Texas pipelines. In the NGL and refined product segment, we expect to spend approximately $1.4 billion in 2025. This includes approximately $1.1 billion on the New England Flexport expansion, Fract 9, Marcus Hook optimization, Lone Star Express optimization, Sabina II NGL pipeline, and storage upgrades at Montbellevue and Spintletaub. The projects are all focused on increasing our ability to meet the fast-growing international demand for NGLs. Within the midstream segment, we expect to spend approximately $1.6 billion in 2025. This includes approximately $1.2 billion related to the Permian Basin processing expansions, treating upgrades, compression additions, and well-connects. Within the crude oil segment, we expect to spend approximately $295 million primarily related to crude oil and water gathering in the Williston Basin, crude gathering build-out in the Permian Basin, as well as optimization projects and well connects. And within our interstate natural gas segment, we expect to spend approximately $170 million largely related to smaller laterals and tie-ins supporting new demand growth off our pipelines, as well as optimization projects on FGT. In addition, in the all other segment, we expect to spend approximately $100 million on new power generation facilities, which will make our critical transportation systems more reliable in the areas that we have significant electricity shortages or intermittent outages. Our projects are expected to achieve mid-teen returns with most of them also providing incremental downstream benefits. Some of these projects are expected online later this year, with the majority of these projects expected online in 2026. As such, we expect the majority of earnings growth from these projects to significantly ramp up in 2026 and 2027. Now taking a closer look at some of our largest growth projects that are currently underway, In December, we FID phase one of the Hugh Brinson pipeline, which will provide significant incremental transportation capacity out of the Permian Basin to connect shippers to energy transfer's vast intrastate natural gas pipeline network and other downstream pipelines, as well as access to the majority of gas utilities in every major trading hub in Texas. The first phase of the project which is expected to be in service by the end of 2026, includes the construction of approximately 400 miles of 42-inch pipeline from Waha to Maple, Texas, with a capacity of approximately 1.5 billion cubic feet per day. Construction will also include the Midland lateral, which is expected to be a 42-mile, 36-inch lateral to connect to energy transfers Midland Basin plants. as well as third-party processing plants in Martin and Midland counties to the Hugh Brinson pipeline. We continue to have discussions with producers regarding phase two of the project. If approved, phase two would add compression to increase the capacity of the new pipeline to approximately 2.2 BCF per day. Combined costs to phase one and phase two are expected to be approximately $2.7 billion. The completed project will be backed by long-term fee-based commitments with strong investment-grade counterparties. This project is expected to further establish energy transfer as the premier option to support power plant and data center growth in the state of Texas. At our needle and terminal, we continue to make progress on the construction of our flex board expansion project. The project will expand our NGL export capacity and remains on schedule. for an anticipated in-service for ethane and propane in mid-2025. In addition, as the next phase of the project, we expect to begin ethylene export service in the fourth quarter of this year. At Montbellevue, construction of our ninth fractionator is underway, which has a design capacity of 165,000 barrels per day, is expected to be in service in the fourth quarter of 2026. This will bring our total fractionation capacity at Mont Bellevue to more than 1.3 million barrels per day. In December of 2024, we completed the initial phase of the Sabina II pipeline conversion from Mont Bellevue to Nederland. This project increased the pipeline's capacity for multiple products from approximately 25,000 barrels per day to approximately 40,000 barrels per day. Ultimately, by mid-2026, we expect to expand the pipeline to approximately 70,000 barrels to meet the growing demand for our natural gasoline products. At our Marcus Hook terminal, we continue to see strong demand for our NGL exports out of this terminal. Construction continues on a 900,000 barrel refrigerated ethane storage tank and the addition of approximately 20,000 barrels per day of incremental ethane chilling capacity. This project will provide us with the ability to load VLECs much faster than we can today, which is very advantageous for many of our customers. Looking at our Permian processing expansions in 2024, we completed the 50 million cubic feet per day upgrades to our Orla East and Gray Wolf processing plants. Construction continues on upgrades to two other processing plants, which we expect will add incremental processing capacity in West Texas of approximately 100 million cubic feet per day by the end of the first quarter of 2025. In addition, construction of the 200 million cubic foot per day badger processing plant in the Permian Basin is underway. As a reminder, this plant, which is expected to be in service in mid-2025, will utilize the idle plant that we are relocating to the Delaware Basin Also, due to significant demand, we are moving forward with the construction of another processing plant in the Midland Basin, the Mustang Draw Plant. We'll have a capacity of approximately 275 million cubic feet per day and is expected to be in service in the first half of 2026. Also, in December, we announced a 20-year LNG sale and purchase agreement to supply two tons of LNG per annum to Chevron USA, Inc. related to our Lake Charles LNG project. We continue to make progress toward full commercialization of this project, which we believe, and many of our customers believe, is the most compelling LNG project on the Gulf Coast. Now for a brief update around our power generation opportunities. Since our last call, the level of activity from demand pool customers has remained strong, and we are in advanced discussions with several other facilities in close proximity to our footprint to supply, store, and transport natural gas for natural gas power plants, data centers, and industrial and onshore manufacturing. In the fourth quarter, we executed a deal on our EOIT pipeline for 90 million cubic foot per day that is expected to come online in 2026. And we have recently completed several agreements with electric utilities in the Midwest to provide connections for new natural gas fire generation that is replacing coal fire generation. Yesterday, we were excited to announce that we have entered into a long-term agreement with Cloud Burst Data Centers to provide natural gas to their flagship AI-focused data center development in Central Texas. Subject to Cloud Burst reaching FID with its customers, Energy Transfer would use its OASIS pipeline provide up to 450,000 MMBTUs per day of firm natural gas supply to Cloudburst's next generation data center campus outside of San Marcos, Texas. The natural gas supply would be sufficient to generate up to approximately 1.2 gigawatts of direct or behind the meter power. This project represents our first commercial arrangement to supply natural gas directly to a data center site and it will not be the last. In aggregate, we have now received requests for potential connections to approximately 62 power plants that we do not currently serve in 13 states and up to 15 plants that we already serve today. In addition, we have now received requests from over 70 prospective data centers in 12 states. Given energy transfer's extensive natural gas infrastructure, we continue to believe that we are the best position to capitalize on the anticipated rise in natural gas demand. As a reminder to support our own operations and increase system reliability for energy transfer and our customers in Texas, we are constructing eight 10 megawatt natural gas fired electric generation facilities. The first of these facilities was placed into service last week and the remainder expected to be in service throughout 2025 and 2026. Now turning to our adjusted EBITDA guidance, we expect our 2025 adjusted EBITDA to be between $16.1 billion and $16.5 billion, which is up approximately 5% from 2024 at the midpoint, and supported by our industry-leading business. We're currently executing on a large opportunity set of growth projects, and we're excited to deploy capital on these impactful opportunities They're expected to provide strong returns and a significant growth trajectory through the end of the decade. Before we conclude, I would like to reiterate the three main themes in the midstream sector that we see driving this critical growth. First, we will continue to see strong volume growth out of the Permian Basin where we will continue to invest capital in our midstream assets. This growth will continue to feed our intrastate segment We have an expansion underway that will help meet power and data center demand in Texas, as well as feed our downstream NGL business. Second, the broader consensus, combined with the number of inbounds we're receiving, suggests that natural gas fuel power demand will increase significantly in the future. We believe the growth needed to accommodate this demand will be significant, and we are in a unique position to capitalize on this opportunity set as demonstrated by yesterday's press release regarding our new partnership with Cloudburst for their planned data center. Lastly, the global demand for U.S. NGL production remains strong and continues to support further development of our NGL infrastructure. Our extensive asset base and the diversity of our product offering is allowing us to deploy capital across all three of these themes. And this gives us great visibility into our ability to grow this one of a kind franchise for years to come. This concludes our prepared remarks. Operator, please open the lines up for our first question.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. We ask that you please limit yourself to one question and one follow-up. And if you have further questions, you may re-enter the question queue. And at this time, we'll pause momentarily to assemble our roster.