ENERGY TRANSFER LP AND SUBSIDIARIES FORM 10-Q
Energy Transfer LP and subsidiaries reported financial results for the quarter ended September 30, 2024. The company’s net income was $1.4 billion, compared to $1.2 billion in the same period last year. Revenue increased 10% to $14.3 billion, driven by growth in the company’s natural gas and crude oil transportation and storage businesses. The company’s cash flow from operations was $2.3 billion, and it distributed $1.1 billion in cash to its unitholders. Energy Transfer’s debt obligations were $44.4 billion, and its equity was $14.5 billion. The company’s reportable segments include natural gas transportation and storage, crude oil transportation and storage, and other. The company’s management’s discussion and analysis of financial condition and results of operations highlights recent developments, results of operations, liquidity and capital resources, and cash distributions.
Sunoco LP’s Divestiture and Joint Venture Transaction
Sunoco LP, a major energy company, has been making some significant changes to its business in recent months. In April 2024, the company completed the sale of 204 convenience stores located in West Texas, New Mexico and Oklahoma to 7-Eleven, Inc. for around $1 billion. As part of this sale, Sunoco LP also amended its existing fuel supply agreement with 7-Eleven.
Additionally, in July 2024, Sunoco LP formed a joint venture with Energy Transfer to combine their respective crude oil and produced water gathering assets in the Permian Basin. This joint venture now operates over 5,000 miles of pipelines and has crude oil storage capacity exceeding 11 million barrels. Energy Transfer holds a 67.5% interest in the joint venture, while Sunoco LP holds the remaining 32.5%.
Quarterly Cash Distribution
In October 2024, Energy Transfer announced a quarterly distribution of $0.3225 per unit ($1.29 annualized) on its common units for the quarter ended September 30, 2024.
Regulatory Update
The report also discusses several regulatory developments that could impact the company’s operations:
Interstate Natural Gas Transportation Regulation:
- The Federal Energy Regulatory Commission (FERC) issued a policy statement in 2018 stating that it will no longer permit master limited partnerships to recover an income tax allowance in their cost-of-service rates. However, the FERC later clarified that a pipeline organized as a master limited partnership can argue for recovery of an income tax allowance in a future proceeding.
- The FERC initiated a review of Panhandle’s existing rates in 2019 to determine if they are just and reasonable. This review is still ongoing, with several orders and appeals filed.
Pipeline Certification:
- The FERC has been reviewing its policies on certification of new natural gas pipelines, including an examination of its 1999 Policy Statement. In 2022, the FERC issued new draft policy statements on these matters, but has not yet finalized them.
Interstate Common Carrier Regulation:
- Liquids pipelines transporting in interstate commerce are regulated by FERC as common carriers. FERC utilizes an indexing rate methodology that allows common carriers to change their rates within prescribed ceiling levels.
- In 2020, FERC established a new index of PPI-FG minus 0.21% for the five-year period from July 2021 to June 2026. This change in the index level could impact the rates charged by the company’s liquids pipelines.
Air Quality Standards:
- In 2023, the EPA finalized its Good Neighbor Plan, which seeks to reduce nitrogen oxide pollution from power plants and other industrial facilities, including certain natural gas pipeline engines. The company estimates that complying with this rule could require substantial capital expenditures, but the final costs are still being assessed due to ongoing legal challenges.
Results of Operations
The report provides a detailed analysis of the company’s financial performance, including the following key points:
Net Income:
- For the three months ended September 30, 2024, net income increased 37% compared to the same period in 2023, primarily due to the recognition of a $625 million non-operating litigation-related loss in the prior period.
- For the nine months ended September 30, 2024, net income increased 37% compared to the same period in 2023, driven by a $598 million gain on the sale of Sunoco LP’s West Texas assets and the $625 million non-operating litigation-related loss in the prior period.
Adjusted EBITDA:
- For the three months ended September 30, 2024, Adjusted EBITDA increased primarily due to the impacts of recently acquired assets, as well as higher volumes in the midstream segment and higher pipeline optimization in the intrastate transportation and storage segment.
- For the nine months ended September 30, 2024, Adjusted EBITDA increased due to higher earnings from multiple segments, primarily from the impacts of recently acquired assets.
The report also provides detailed segment-by-segment analysis of the company’s performance, including factors driving changes in segment margin and Adjusted EBITDA.
Liquidity and Capital Resources
The company currently expects capital expenditures in 2024 to be within the following ranges:
| Segment | Growth (Low - High) | Maintenance (Low - High) |
|---|---|---|
| Intrastate Transportation and Storage | $45 - $50 million | $55 - $60 million |
| Interstate Transportation and Storage | $160 - $170 million | $190 - $195 million |
| Midstream | $870 - $940 million | $390 - $395 million |
| NGL and Refined Products Transportation and Services | $1,215 - $1,290 million | $130 - $135 million |
| Crude Oil Transportation and Services | $290 - $310 million | $140 - $145 million |
| All Other (including eliminations) | $220 - $240 million | $65 - $70 million |
| Total | $2,800 - $3,000 million | $970 - $1,000 million |
The company generally funds capital expenditures and distributions with cash flows from operating activities. Sunoco LP and USAC, the company’s publicly traded subsidiaries, also have their own capital expenditure plans for 2024.
The report discusses the company’s cash flows, including:
Operating Activities:
- Cash provided by operating activities during the first nine months of 2024 was $8.92 billion, compared to $8.26 billion in the same period of 2023.
- The increase was primarily due to higher net income, partially offset by changes in working capital.
Investing Activities:
- Cash used in investing activities during the first nine months of 2024 was $4.44 billion, compared to $3.36 billion in the same period of 2023.
- The increase was primarily due to higher capital expenditures and acquisitions, partially offset by proceeds from the sale of Sunoco LP’s West Texas assets.
Financing Activities:
- Cash used in financing activities during the first nine months of 2024 was $4.34 billion, compared to $4.64 billion in the same period of 2023.
- The decrease was primarily due to a net increase in debt levels, partially offset by higher distributions paid and redemption of preferred units.
The report also provides details on the company’s outstanding indebtedness, including recent transactions such as senior note redemptions, new note issuances, and changes to subsidiary credit facilities.
Cash Distributions
The report outlines the cash distributions paid by Energy Transfer, Sunoco LP, and USAC to their respective unitholders subsequent to December 31, 2023.
Outlook and Risks
The report concludes by discussing various forward-looking statements and risks that could impact the company’s future performance, including:
- The ability of subsidiaries to make cash distributions
- Volumes transported on pipelines and gathered
- Fees charged and margins realized for services
- Commodity price fluctuations
- Weather conditions
- Regulatory changes
- Construction and integration of new projects
- Access to capital
- Cyber and malware attacks
- Litigation and legal proceedings
Overall, the report provides a comprehensive overview of Sunoco LP’s recent strategic actions, financial performance, liquidity, capital expenditures, and the key risks and uncertainties facing the company going forward.
