Energy Transfer LP

Good morning and welcome to the Energy Transfer Fourth Quarter 2025 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist 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 a touch-tone phone. 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 Tom Long, Co-Chief Executive Officer.

Please go ahead.

Thank you, operator, and good morning, everyone, and welcome to the Energy Transfer Fourth Quarter 2025 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 morning. As a reminder, our earnings release contains an update to guidance and a thorough MD&A that goes through the segment results in detail And we encourage everyone to 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 21E of the Security Exchange Act of 1934. These statements are based upon our current 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, 2025, which we expect to follow later this week. I'll also refer to adjusted EBITDA and distributable cash flow, or DCF, both of which are non-GAAP financial measures. You'll find a reconciliation of our non-GAAP measures on our website. Let's start today with financial results for full year 2025. Adjusted EBITDA was nearly $16 billion compared to $15.5 billion for 2024. This was up 3% over last year and was a partnership record. DCF, attributable to the partners of Energy Transfer as adjusted, was $8.2 billion compared to $8.4 billion for last year. Operationally, we moved record volumes across each of our interstate, midstream, NGL, and crude segments for the year ended 2025. We also exported a record amount of total NGLs out of our Nederland and Marcus Hook terminals. For the fourth quarter of 2025, we generated adjusted EBITDA of approximately $4.2 billion, compared to approximately $3.9 billion for the fourth quarter of last year. DCF, attributable to the partners of Energy Transfer, as suggested, was approximately $2 billion, consistent with the fourth quarter of 2024. During the quarter, we recorded records in each of our NGL fractionation throughput, LPG exports, needle and terminal volumes, and crude transportation throughput. And for full year 2025, we spent approximately $4.5 billion on organic growth capital, primarily in the NGL and refined products, midstream, and intrastate segments, excluding sun and USA compression capex. Turning to our results by segment for the fourth quarter, and we'll start with the NGL and refined products. Adjusted EBITDA was $1.1 billion, consistent with the fourth quarter of 2024. We saw higher throughput across our Gulf Coast and Mariner East pipeline operations, Mont Bellevue fractionators, and Nederland terminal. Results for the quarter, including a one-time $56 million increase from a regulatory order impacting prior and current period rates. These were offset by $58 million of lower gains related to the timing of the settlement of NGL and refined products inventory hedges, which we anticipate will be recognized during the first quarter of 2026. In addition, loading delays related to fog at Needland resulted in a $14 million impact, which we are on track to make up in the first quarter of 2026. For midstream, adjusted EBITDA was $720 million compared to $705 million for the fourth quarter of 2024. This was primarily due to volume growth in the Permian, Northeast, and Arklatex regions. Results were partially offset by a one-time expense increase of $14 million in intersegment NGL transportation fees as a result of the previously mentioned regulatory order. For the crude oil segment, adjusted EBITDA was $722 million compared to $760 million for the fourth quarter of 2024. During the quarter, we saw growth across several of our crude pipeline systems and our Permian Basin gathering system. Results also included a one-time $19 million increase related to the previously mentioned regulatory order. These were offset by lower transportation revenues primarily on Bakken pipelines. In our interstate natural gas segment, adjusted EBITDA was $523 million compared to $493 million for the fourth quarter of last year. This increase was primarily due to more capacity sold and higher utilization on several of our pipelines, including Panhandle Eastern, Trunkline, Florida Gas, and TransWestern. And for our intrastate natural gas segment, adjusted EBITDA was $355 million compared to $263 million in the fourth quarter of last year. This increase was primarily due to increased pipeline and storage optimization, as well as increased volumes across our Texas intrastate pipeline system due to third-party volume growth. Now turning to our organic capital guidance, as we previously announced, our 2026 Organic growth capital guidance range is projected to be between $5 and $5.5 billion, excluding sun and USA compression. We expect approximately two-thirds of this capital to be invested in projects that will enhance our natural gas assets, including the Hugh Brinson and Desert Southwest pipeline projects, Mustang Draw 1 and 2, as well as continued system build-out in the Permian Basin. In addition, approximately a quarter of the growth capital will be in the NGL and refined product segment related to the ongoing construction of the Nederland and Marcus Hook terminal expansions, as well as Rack 9 and Mont Bellevue. These expansions are contracted under long-term commitments and are expected to generate mid-team returns and considerable earnings growth over the next decade or more. Beyond these projects, we have a significant backlog of opportunities that are expected to support continued growth. For a closer look at some of our major growth projects, I'll start with the natural gas side of our business, where we continue to see significant demand for our services. In December, we announced that we have upsized the mainline pipeline diameter for Desert Southwest Pipeline projects. from 42 inches to 48 inches to meet the planned and anticipated customer demand. This will increase the project's capacity to up to 2.3 BCF per day. A full build-out of the project is expected to cost approximately $5.6 billion, and we continue to expect the project to be in service by the fourth quarter of 2029. Our teams continue to actively engage with elected officials, county leadership, and associated communities along the route to communicate project information and updates. And we have engaged with over 275 stakeholders today. Our discussions have been very positive, and existing and potential stakeholders are pleased about the economic benefits expected and also realize the critical need for a substantial, reliable supply of gas to help address the significant demand growth in Arizona and the Mexico market. Next, construction of our Hugh Brinson pipeline is going well. As of today, 100% of the 42-inch pipe has been delivered to our pipe yards, and mainline construction of the pipeline is approximately 75% complete. We expect phase one to be in service in the fourth quarter of this year. However, if we stay on our current schedule, we should have the ability to flow some early volumes prior to phase one in service. And we continue to expect phase two to be in service in the first quarter of 2027. As a reminder, this system will be bidirectional with the ability to transport approximately 2.2 BCF per day from west to east and approximately one BCF per day from east to west. The pipe is fully contracted from west to east, and we also have a growing amount of volume committed on backhaul that is expected to add significant upside with no additional capital. On Florida Gas Transmission, or FGT, we recently completed open seasons for two new projects that are supported by long-term binding agreements from anchor shippers. The Phase 9 project, which is designed to expand firm natural gas transportation capacity to multiple new and existing meter stations, located across FGT's market area. This project will consist of the construction of up to 82 miles of pipeline looping, as well as new and upgraded compression. This would expand FGT's capacity by up to 550 million cubic feet per day. The project is expected to be available for service in the fourth quarter of 2028. The South Florida project is designed to enhance the reliability of critical infrastructure and increase overall deliveries in South Florida. It will consist of the construction of a new 37-mile lateral to supply the South Florida area, along with compression and a new meter station. The project is expected to be available for service in the first quarter of 2030. Energy transfers share of the cost of these two projects is expected to be up to $535 million and $110 million, respectively, depending on the final shipper volume elections. And construction of a new storage cavern at our Bethel's natural gas storage facility, which is expected to double our working gas storage capacity at the facility to over 12 BCF, remains on schedule to be in service in late 2028. Now for a brief update around recent natural gas opportunities for new power plant and data center development. On our last call, we announced we have long-term agreements with Oracle to deliver approximately 900,000 MCF per day of natural gas to three U.S. data centers. We recently began flowing gas on the first pipeline lateral to a data center campus near Abilene, Texas. Two more laterals are expected to be completed in mid-2026. Supply for all three of these pipelines will be sourced from our Hugh Brinson and North Texas pipelines. As a reminder, Energy Transfer has entered into a 20-year binding agreement with Entergy Louisiana to provide at least 250,000 MMVTUs per day of firm transportation service to fuel their facilities in Richland Parish, Louisiana. Within the last year, we have contracted over six BCF per day of pipeline capacity with demand pool customers. This includes volumes from end users, data centers, and utilities off of Desert Southwest, Hugh Branson Pipelines, and other of our natural gas pipeline systems. And we remain in advanced discussions with several other facilities in close proximity to our footprint. Our Oklahoma and tri-state power team recently added connections to serve three new power plant loads in the state of Oklahoma, totaling approximately 190 million cubic feet per day. These are expected to come online in the second quarter of 2026. These connections are supported by long-term contracts with investment-grade counterparties. In addition, we have also entered into advanced negotiations to serve another 350 million cubic feet per day of new power plant demand in Oklahoma. Outside of Oklahoma and Texas, our team continues to work on multiple transactions with power plants to provide significant transportation revenue across 13 other states, which have a high likelihood of reaching FID targets. Lastly, construction of eight 10-megawatt natural gas-fired electric generation facility continues. And we expect our third facility, which will be located at our Gray Wolf processing plant, to be in service in the first quarter of 2026. The remaining five facilities are expected to be fully constructed and ready for service later this year. Now looking at the Permian processing expansions, We continue to expect our Mustang Draw 1 and 2 plants to be in service in the second quarter and fourth quarter of this year, respectively. At our Nederland terminal, volumes on our Flexport NGL export expansion project have continued to ramp up, and we exported our first two ethylene cargoes in December of 2025. This contributed to record exports out of Nederland for the fourth quarter of 2025. We continue to work with Enbridge on a project to provide capacity for approximately 250,000 barrels per day of light Canadian crude oil through our Dakota Access Pipeline. We expect to take FID on this project by mid-2026. Turning to Lake Charles LNG, in December we announced that we suspended the development of this project. As we have previously stated, we continue to be extremely focused on capital discipline, and we have directed our efforts toward our significant backlog of projects that we believe provide a more attractive risk-return profile. However, we remain open to discussions with third parties who may have an interest in developing the project as we would expect to benefit from providing natural gas transportation capacity for the project. We're also exploring other projects to better utilize the terminal in a more profitable way. Turning to our guidance, we now expect our 2026 adjusted EBITDA to range between $17.45 billion and $17.85 billion, compared to the previous range of between $17.3 billion and $17.7 billion. This change in guidance is solely attributable to the USA Compression's acquisition of JW Power Company, which closed on January the 12th, 2026. Looking ahead, we are poised for continued growth in 2026, driven largely by the ramp of our Flexport NGL export project, new Permian processing plants, and other projects. We believe our Hugh Brinson pipeline, which is expected online later this year, is extremely well positioned to become a major U.S. header system that ties together with our network of large diameter pipelines and allows us the flexibility to deliver natural gas from Texas to the desert southwest, southern Florida, the Midwest, and anywhere in between. In addition to our extensive pipeline systems, we have over 230 BCF of storage to support the market demands of our customers. This should provide significant upside in the future and further establish Energy Transfer's natural gas pipeline business as the premier option for customers seeking dependable natural gas supply. We are currently undertaking a large slate of growth projects, including projects that will help address the need for reliable natural gas solutions to support power plant and data center growth plans, as well as the growing international demand for natural gas liquids. As a result, project execution remains one of our top priorities for 2026 and we will continue to place a significant amount of focus on completing projects safely on time and on budget. We also continue to see new growth opportunities across all aspects of our business and are extremely well positioned to help meet the substantial growth in demand for energy resources over the next several years. Given our extensive backlog of potential growth projects, we continue to be extremely focused on capital discipline and will continue to target projects that are expected to generate the highest returns while balancing project risk. We continue to target a long-term annual distribution growth rate of 3 to 5%. We also expect to maintain our leverage target of 4 to 4.5 times EBITDA during this period of meaningful investment opportunities. In summary, our extensive asset base and diverse product offerings is allowing us to deploy capital across our footprint. With several major growth projects coming online over the next several years, we continue to have great visibility into our ability to grow our franchise for many years to come. This concludes our prepared remarks. Operator, please open the lineup for our first question.