Energy Transfer LP

Good day, and welcome to Energy Transfer's Q2 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please schedule a conference question for 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 telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I'd now like to turn the conference over to Tom Long, CEO. Please go ahead.

Thank you, operator, and good morning, everyone, and welcome to the Energy Transfer Second Quarter 2026 Earnings Call. I'm also joined today by Mack 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 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 10Q for the quarter ended June 30, 2026, 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 going over our financial results For the second quarter of 2026, we generated a just-evened dollar of approximately $5.1 billion compared to approximately $3.9 billion for the second quarter of last year. DCF, attributable to the partners of Energy Transfer, as adjusted, was approximately $2.6 billion compared to approximately $2.0 billion for the second quarter of 2025. These results were supported by strong performance and all of our business segments, including record midstream gathering volumes, NGL transportation volumes, NGL export volumes and crude oil transportation volumes for the quarter. And for the first half of 2026, we spent approximately $2.6 billion on organic growth capital in the intrastate, midstream, NGL refined products and interstate segments, excluding sun and USA compression capex. Turning to our 2026 adjusted EBITDA guidance, given our continued strong performance in the second quarter across all of our segments, we now expect our full year adjusted EBITDA to range between $18.8 billion and $19.1 billion, which is up approximately a half a billion dollars at the midpoint compared to our guidance range provided on last quarter's earnings call. Let's go to the organic products. Capital Guidance We now expect our 2026 organic growth capital expenditures to be between $5.6 and $5.9 billion, excluding Sun and USAC. Our growth capital spend remains aligned with the major themes driving our business today, including the increasing demand for natural gas and natural gas infrastructure to support the growing needs for power generation, growth in the Permian, and the growing global demand for natural gas and natural gas liquids. As a reminder, the majority of these growth projects are contracted under long-term commitments and expected to generate mid-teen 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 future growth. Now turning to our results by segment for the second quarter, I'll start with NGL and refined products. Adjusted EBITDA was approximately $1.3 billion compared to approximately $1.0 billion for the second quarter of 2025. This increase included record exports out of both our Nederland and Marcus Hook terminals in the second quarter, in part driven by new chilling capacity placed into service last year at Nederland. In addition, we saw record throughput across our NGL pipelines related to higher Y grade and NGL throughput, as well as higher throughput at our Montbellevue fractionators. Results for the second quarter also included an increase of $212 million from higher premiums from the sale of NGLs for both export and domestic supply, as well as increased margins from our product optimization and blending operations. This also included gains related to our NGL and refined products inventory hedges, 27 million of which we anticipate will be offset in the fourth quarter of this year. For midstream, the adjusted EBITDA was approximately $884 million compared to approximately $768 million for the second quarter of 2025. This was due to record volumes in the Permian Basin. which increased 5% as a result of new processing placed into service and improved plant utilization. In addition, we saw an approximate $88 million increase due to higher NGL prices compared to last year. For our crude oil segment, Adjust Deep Agave was approximately $834 million compared to approximately $732 million for the second quarter of 2025. During the quarter, We saw continued growth across several of our crude pipelines, terminals, and gathering systems. Results also included an increase of $106 million related to favorable market conditions, including pipeline and export arbitrage, higher crude oil prices, and strategic petroleum reserve activity at our Nederland terminal. As a reminder, in the first quarter of this year, We had a benefit of approximately $60 million related to our crude inventory value that was offset by hedge losses in the second quarter. In the interstate natural gas segment, adjusted EBITDA was approximately $481 million compared to approximately $470 million for the second quarter of 2025. This increase was primarily due to increased parking, storage, and Liquids Revenue, as well as higher contracted volumes and utilization on several of our pipelines, including Panhandle Eastern, TransWestern and Florida Gas Transmission. And for our intrastate natural gas segment, adjusted EBITDA was approximately $377 million compared to approximately $284 million in the second quarter of 2025. This was primarily due to an increase of approximately $113 million from wider basis differentials as well as an increase of approximately $17 million from early volumes during the commissioning of the Hugh Brinson pipeline. This quarter's results once again demonstrate the quality of energy transfer's asset base and unique operating model and further strengthen our belief that the market fundamentally under appreciates the value of our business. Turning to an update on some of our major growth projects and starting with the natural gas side of our business, We are pleased to announce that our Hugh Brinson pipeline is now in commercial service with progress being made toward placing the full phase one capacity of 1.5 BCF per day in service. Hugh Brinson shipper contracts are coming online in stages based upon the contractually specified effective date in each agreement. We anticipate that Hugh Brinson will be capable of flowing the full phase one capacity by September the 1st of 2026 assuming pipeline commissioning activities continue to progress as scheduled. We continue to expect Phase 2, which includes additional downstream compression, to be in service in the first quarter of 2027 and to come in under budget. In addition, during the second quarter, we completed another 14-mile lateral off the Hugh Brinson Pipeline in Abilene, Texas, and is now ready for service. During the quarter, we also entered into an agreement with to construct the facilities required to provide natural gas to support previously announced 900 megawatt expansion at the AI Factory Campus in Adeline, Texas. Separately, we expect to see additional growth opportunities materialize in the region. Next, we're making good progress on our Desert Southwest Pipeline project. Work recently completed six in-person and two virtual scoping meetings along the proposed pipeline route throughout Texas, New Mexico, and Arizona. In addition, as a continuation of our comprehensive stakeholder engagement program, our teams continue to actively engage with elected officials, county leadership, landowners, and associated communities along the route with discussions remaining very positive. On our last call, we announced the Springville Lateral, which is an approximately 120-mile extension are existing transwestern pipeline and is expected to be in service in the fourth quarter of 2029. This 30-inch pipeline will have a capacity of approximately 625 million cubic feet per day and extend itself to natural gas power generation that is expected to replace two coal-fired plants. We have now locked in pipe and compression costs, and outreach is underway with tribal, state, and federal stakeholders. In Oklahoma, The first of our four connections to serve new power plant loads went into service earlier this year. The next two are ready for service with remaining expected to be in service in the fourth quarter of 2028. In total, these will provide approximately 300 million cubic feet per day of new demand growth. In addition, we are finalizing negotiations to serve approximately 250 million cubic feet per day of new power plant demand in Oklahoma. Overall, we're now seeing interest from customers in increasing the commitments that they have previously made for our natural gas services to large data centers and power plants at or near these sites. This includes two customers in Texas who recently added a combined 100 million cubic foot per day to their contracts. We expect this trend to not only continue, but grow in scale. We're highly confident in our ability to reach FID on many more of these type of opportunities and remain in advanced negotiations with customers to provide significant volumes associated with our natural gas business in Texas, Oklahoma, Arkansas, Louisiana, Ohio, Illinois, and many other states along our pipeline network. Now looking at the Permian processing expansions, our Mustang draw one plant was placed into service in June. and we are already running near capacity for our Midland Basin processing complex. We continue to expect our Mustang Draw 2 plant to be in service in the fourth quarter of this year. Looking at our liquids business, in June we announced approximately 240,000 barrel per day ethane export expansion at our Needland terminal to meet additional customer demand. The project will also provide an incremental 55,000 barrels per day of LPG capacity. In addition, we'll be expanding our Mont Bellevue to Nederland pipeline system to service the increased refrigeration capacity and two additional NGL ship docks. The project is expected to be placed into service in stages beginning in 2028, with the docks expected to be in service in mid-2029. 100% of the ethane export capacity has been committed under long-term agreements running into the 2040s and 80% of these volumes are expected to be delivered to markets in Asia that are outside of China. Growth capital for the project is expected to be slightly over $1 billion and this 2026 capital expenditure was previously included in our growth capital guidance. In the second quarter, we completed upgrades to our Lone Star Express NGL pipeline which provides more than 90,000 barrels per day of incremental Permian NGL takeaway capacity on the pipeline system and led to record wide grade volumes out of the Permian for the second quarter. As a result of our total deliverability into Montbellevue is now more than 1.3 million barrels per day and our Permian NGL takeaway pipelines are currently approximately 95% utilized. Also in the second quarter, We signed long-term transportation and or fractionation agreements for upwards of approximately 300,000 barrels per day on our wide-grade assets that extend into the 2030s. And at Mont Bellevue, our fractionators remained fully utilized in the second quarter. We expect volumes on our new Fract 9 to ramp up quickly upon its anticipated in-service late this year. Results for the second quarter were better than expected, with market volatility contributing to significant upside, in addition to the record volumes and strong base business performance. As we have previously said, additional upside to our forecast is expected to be dependent upon the duration and impact of market disruptions, and our business is uniquely positioned to capture these benefits should they continue. We continue to expect the ramp up of Mustang Draw, Hugh Brinson, and other projects to contribute to additional growth in 2026. With Hugh Brinson now capable of commercial service and the full phase one expected to be ready ahead of schedule, we expect it to provide significant future upsides and further establish energy transfers, natural gas pipeline business as the premier option for customers seeking dependable natural gas supply. With a large slate of growth projects under construction, We are extremely focused on project execution, as evidenced by Hugh Brinson. Completing these projects safely, on time, and on budget remains among our top priorities. We also remain very focused on capital discipline, targeting a long-term annual distribution growth rate of 3 to 5 percent, and maintaining our leverage targets of 4 to 4.5 times EBITDA. Our unmatched connectivity allows us to move energy from every major supply basin to major trading hubs, fire plants, data centers, city gates, industrial complexes, and other downstream markets throughout the U.S., as well as to international markets through our export terminals. This concludes our prepared remarks. Operator, please open the lineup for our first question.

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If any comment or question is unaddressed and you would like to withdraw it, please press star then 2. At this time, we pause momentarily to assemble the roster. And today's first question comes from Theresa Chen with Barclays.