Energy Transfer LP

Good morning and welcome to the Energy Transfer First Quarter 2026 Earnings Call. All participant lines will be in the 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 and then one on your touchtone phone. To withdraw your question, you may press star and then two. Please note, this event is being recorded. I would now like to turn the conference call over to Mr. Tom Long, Co-Chief Executive Officer. Thank you, and over to you.

Thank you, Operator, and good morning, everyone, and welcome to the Energy Transfer First Quarter 2026 Earnings Call. I'm also joined today by Mackie McCree, Dylan Bramhall, 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 take a look at the press 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 meeting 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 detail in our Form 10-Q for the quarter end of March 31, 2026, which we expect to file 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 by going over our financial results for the first quarter of 2026. We generated adjusted EBITDA of approximately $4.9 billion compared to approximately $4.1 billion for the first quarter of last year. DCF, attributable to the partners of Energy Transfer, as adjusted, was approximately $2.7 billion compared to approximately $2.3 billion for the first quarter of 2025. These results were supported by strong operations, including record midstream gathering volumes, NGL fractionation volumes, NGL export volumes, and crude oil transportation volumes for the quarter. And for the first quarter of 2026, we spent approximately $1.5 billion on organic growth capital, primarily in the intrastate, NGL and refined products, midstream, and interstate segments, excluding sun and USA compression capex. Turning to our 2026 guidance, as a result of our strong first quarter performance across our segments, as well as revised expectations for the rest of 2026, we now expect our 2026 adjusted EBITDA to range between approximately $18.2 billion and $18.6 billion, compared to the previous range of between approximately $7.45 billion and $17.85 billion. This includes a beat of approximately $500 million and the capture of our full-year optimization target in the first quarter, as well as the expectations for continued outperformance for the balance of the year. Now turning to organic growth capital guidance, we now expect 2026 organic growth capital guidance to be between approximately $5.5 billion and $5.9 billion, compared to our previous guidance of approximately $5 billion to $5.5 billion, excluding Sun and USAC. This increase is primarily a result of the addition of several new growth projects, including the construction of the new Springerville lateral off our existing transwestern pipeline, the construction of pipelines and meter stations to provide natural gas to various power plants and data center sites in Oklahoma and Arkansas, accelerated timing on longer-term projects like Desert Southwest and FGT Capital Spin, and gathering system and compression build-out in the midstream segment, primarily in the Permian Basin associated with recent contract and acreage dedication extensions. I will provide additional details about these projects later in the call. Beyond these projects, we continue to have a significant backlog of opportunities that are expected to support future growth. Now turning to our results by segment for the first quarter and we'll start with NGL refined products adjusted EBITDA was approximately $1.2 billion compared to approximately $978 million for the first quarter of 2025. We saw higher throughput across our Gulf Coast pipeline operations and record performance at our Mont Bellevue fractionators. In addition, New chilling capacity placed into service last year contributed to a $50 million increase in earnings, as well as record export volumes from our Needland Terminal in the first quarter. This more than made up for fog delays experienced in the fourth quarter of 2025. During the first quarter of 2026, we realized higher gains of $65 million due to the timing of the settlement of NGL refined product inventory hedges. which offset losses realized in the fourth quarter of 2025. Results for the quarter also included an increase of approximately $50 million from higher premiums from the sale of propane and butane for both export and domestic supply, as well as approximately $25 million increase due to inventory write-down losses realized in the first quarter of last year. For midstream, adjusted EBITDA was approximately $887 million compared to approximately $925 million for the first quarter of 2025. Base business earnings increased primarily due to growth in the Permian Basin, where we saw volumes up 8% related to new and upgraded processing plants brought online since the first quarter of last year. In addition, we saw a $25 million decrease due to lower NGL natural gas prices compared to last year. As a reminder, the first quarter of last year included the recognition of revenue of $160 million from winter storm URI. For the crude oil segment, adjusted EBITDA was approximately $869 million compared to approximately $742 million for the first quarter of 2025. During the quarter, we saw continued growth across several of our crude oil pipeline and gathering systems. Results also included a $60 million increase related to favorable impacts to our crude oil inventory value as a result of rising crude oil prices. We expect these gains to be mostly offset with hedge losses during the second quarter of this year. In addition, we recognize $43 million of revenue that had previously been reserved related to the recontracting and extension of a legacy shipper contract during the recently completed successful DAPL open season. And we had lower expenses due to a $43 million adjustment to an accrual for a litigation-related contingency. In our interstate natural gas segment, adjusted EBITDA was approximately $519 million compared to approximately $512 million for the first quarter of 2025. This increase was primarily due to higher contracted volumes and higher rates on several of our pipelines, including Panhandle Eastern, Trunkline, Florida Gas, and TransWestern. And for our intrastate natural gas segment, adjusted EBITDA was approximately $437 million compared to approximately $344 million in the first quarter of 2025. This was primarily due to an increase of approximately $100 million from winter storm burn. The results for the first quarter show how incredibly well positioned our assets are across the country. Combining our extensive pipeline network, our storage facilities, and our terminals with our exceptionally experienced optimization and operating teams, we were able to capitalize on quickly changing dynamics and market volatility. For a closer look at some of our major projects, and I'll start with the natural gas side of our business, where we continue to see significant demand for our services. We are making good progress on our Desert Southwest Pipeline project. In March 2026, Transwestern Pipeline initiated the FERC prefiling process for the project as previously scheduled, and we expect to file the formal certificate application with FERC in the fourth quarter of this year. In April, as a continuation of our comprehensive stakeholder engagement program, We hosted 15 open houses and communities along the entire proposed pipeline route throughout Texas, New Mexico, and Arizona. Our teams continue to actively engage with elected officials, county leadership, landowners, and associated communities along the route to communicate project information and updates, and we have engaged with over 500 stakeholders today. Our discussions have continued to be very positive as existing and potential stakeholders learn more about the expected economic benefits and realize the critical need for a dependable supply of natural gas to help with the transition from coal-fired generation to natural gas-fired generation and to help address significant power needs in the coming years driven by population and demand growth in Arizona and the Mexico markets. We expect this pipeline to be in service providing a reliable energy source by the fourth quarter of 2029. On the existing transwestern pipeline, we recently approved the construction of the new Springerville lateral, an approximately 120-mile, 30-inch pipeline that will have a capacity of approximately 625 million cubic feet per day and extend south to new natural gas-powered generation that is expected to replace two coal-fired plants. This project is backed by 20-year agreements and is expected to be in service in the fourth quarter of 2029. Total growth capital for this project is expected to be approximately $600 million. New construction of our Hugh Brinson pipeline is going well. We continue to expect phase one to be in service in the fourth quarter of this year upon the full build-out of the 400-mile pipeline and associated compression required to move 1.5 BCF per day of gas to customers' contractual delivery points. However, if we stay on our current schedule, we will have the ability to begin flowing some gas early in the third quarter, which is prior to placing phase one into service. And we continue to expect phase two, which includes additional compression, to be in service in the first quarter of 2027. The pipe is fully contracted from west to east, and we also have a growing amount of backhaul volumes committed that are expected to add significant upside. Turning to Florida Gas Transmission, or FGT, in February, we completed open seasons for two new projects that are supported by 15- to 25-year long-term agreements with Anchor Shippers. The Phase 9 project, which is designed to expand perm 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 approximately 90 miles of pipeline looping, as well as new and upgraded compression with an anticipated capacity of approximately 525 million cubic feet per day. We recently locked in pipe for delivery at the end of 2027, and compression for delivery in the first quarter of 2028. And we continue to expect the project 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. The project has a condition precedent But once we reach FID, it will consist of the construction of an approximately 40-mile extension with a capacity of approximately 230 million cubic feet per day, along with compression and a new meter station, and is expected to be available for service in the first quarter of 2030. Energy transfer share of the cost for these two projects is expected to be approximately $565 million and approximately $110 million respectively, depending upon final shipper volume elections. We continue to make progress on a new storage cavern at our Bethel Natural Gas Storage Facility, which is expected to double our working gas storage capacity at the facility to over 12 BCF. In February, our Intrastate Power Team added connections to serve three new power plant loads in the state of Oklahoma. We have since added a fourth connection for a total of approximately 300 million cubic feet per day, of new gas supply. The first of these connections is in service with two more expected in service in the third quarter of this year. The remaining connection is expected to be in service in the fourth quarter of 2028. These connections are supported by long-term contracts with investment grade counterparties. In addition, we have entered advanced negotiations to serve another 400 million cubic feet per of new power plant demand in Oklahoma. And since our last earnings call, Energy Transfer has entered into agreements to provide long-term, firm natural gas transportation services through our Texas intrastate system to support the Nexus Hubbard Campus, located in Central Texas, where Nexus is constructing a behind-the-meter AI hyperscale campus powered by on-site natural gas generation. Initial volumes are expected to be approximately 150 million cubic feet per day with certain rights by the transporter to increase its capacity upon election. Costs associated with this project are expected to be fully reimbursed and it is expected to be in service by the end of this year. In addition, we recently entered into a LOI to provide approximately 150 million cubic feet per day of firm natural gas transportation service through our EGT pipeline to support a new data center site in Arkansas. The facility is expected to be in service in mid-2027. Energy Transfer also previously 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. To facilitate flow of this gas, we plan to construct an 18-mile lateral off of our Tiger pipeline, for which our customer recently exercised their option to upsize the pipeline lateral to 36 inches. And they continue to have an option to increase their commitment to up to one BCF per day. In addition to these projects, we have multiple ongoing discussions with power plants to provide significant volumes and associated transportation revenues across 15 states which have a high likelihood of reaching FID. Now looking at our Permian processing expansions, the 275 MMCF per day Mustang Draw 1 processing plant is currently being commissioned and is expected to be in full service next month. And we expect volumes to ramp up quickly. And we continue to expect our 275 MMCF per day Mustang Draw 2 plant to be in service in the fourth quarter of this year. In our NGL segment, we placed the Gateway NGL Pipeline de-bottlenecking project into service in the first quarter of this year, providing increased deliveries of Delaware Basin liquids to Energy Transfers NGL Fractionation Complex in Montbellevue. Construction is also underway on a new 3 million barrel ethane storage cavern at Energy Transfers NGL Fractionation Complex at Montbellevue. The cavern, which is expected to be in service in the second half of 2027, will help support our ninth fractionator at Mont Bellevue that is expected to be in service in the fourth quarter of this year, as well as future ethane export expansions. At Nederland, we've recently extended the vast majority of our ethane export agreements into 2041, adding 10 years to the current contracts. We are hopeful to be in the position for incremental Nederland ethane expansion in the coming months. In our crude oil segment, 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. The open season is underway, and we still expect to take FID of this project by mid-2026. In addition, we have approved an expansion of the Bayou Bridge crude oil pipeline, which is expected to increase the capacity to up to approximately 600,000 barrels per day depending on destination and product mix. This expansion is underpinned by a 10-year term extension and volume increase from a demand pull customer and is expected to be in service in Q1 of 2027. I think as all of you can see, we had a lot of great things happen in the first quarter and many more exciting things on the way. which contributed to our increased EBITDA guidance for 2026. Our guidance each year is based upon expectations for the base business with minimal optimization included. However, in five of the last eight years, we have seen large spreads, optimization, and other opportunities that have provided significant upside to our base business. These kinds of benefits, while one time in nature, highlight the unique ability of our business to consistently capture significant upside during market volatility. While additional upside is expected to be dependent upon the duration and impact of current market disruptions and resulting commodity prices, our assets remain incredibly well positioned to continue maximizing on these opportunities. As a result, We are optimistic that some of the benefits we saw in the first quarter will carry over throughout the rest of the year, putting us in a position to achieve or exceed the high end of our guidance range. Additionally, we continue to expect the ramp up of growth projects, including our Flexport NGL export project, new Permian processing plants, Hugh Brinson and others, which we expect will contribute to continued growth in 2026, in particular, Once our Hugh Brinson pipeline is in service, it will be extremely well positioned to become a major U.S. header system that ties together our network of large diameter pipelines, providing significant future upside. Our large slate of growth projects is contracted under long-term commitments and expected to generate mid-teen returns and considerable earnings growth over the next decade or more. Completing these projects safely on time and on budget remains one of our top priorities for 2026. We also continue to see new growth opportunities across all aspects of our business demonstrated by the announcement of several new projects this quarter, and we remain extremely well positioned to help meet the substantial growth in demand for energy resources over many years to come. As a result, we also remain very focused on capital disciplines. targeting a long-term annual distribution growth rate of 3% to 5% and maintaining our leverage target of 4% to 4.5% EBITDA. In summary, because of the breadth of our assets, we have an unparalleled ability to transport large amounts of energy from all of the major supply basins to markets throughout the U.S., including major trading hubs, power plants, data centers, city gates, industrial complexes, and other downstream markets, including international markets, through our export terminals. This concludes our prepared remarks. Operator, please open the line up for our first question.

Thank you. We will now begin the question and answer session. To ask a question, you may press star and then one on your telephone keypad. If you're using a speakerphone, 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 and then two. At this time, we will pause momentarily to assemble a roster. We have the first question on the line of Michael Bloom from Wells Fargo. Please go ahead.