Energy Transfer LP — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Energy Transfer is a diversified U.S. midstream partnership with pipeline, gathering, processing, storage, terminal, fuel distribution and compression operations; reported results consolidate subsidiaries including Sunoco LP and USAC.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $20.739B | $22.939B | $58.054B | $69.375B |
| Operating income | $2.233B | $1.973B | $6.130B | $5.932B |
| Net income | $1.047B | $1.322B | $3.727B | $4.431B |
| Net income attributable to common unitholders | $466M | $899M | $2.266B | $3.281B |
| Basic earnings per common unit | $0.15 | $0.29 | $0.73 | $1.06 |
| Adjusted EBITDA (non-GAAP) | $3.541B | $3.088B | $10.096B | $9.656B |
| Operating cash flow | Not separately stated in the provided filing text | Not separately stated in the provided filing text | $8.259B | $7.713B |
For the nine months, capital expenditures were $2.093B on an accrual basis; cash capital expenditures, net of construction contributions, were approximately $2.39B. Investing cash outflow was $3.361B and financing cash outflow was $4.641B. Cash rose to $514M from $257M at year-end 2022.
At September 30, total debt was $48.081B, including $1.006B of current maturities; long-term debt was $47.075B. The Partnership’s $5B revolving facility had $2.12B available, with $2.85B outstanding and a 6.29% weighted-average rate. Current assets were $13.423B and current liabilities $12.755B. The Partnership and subsidiaries reported compliance with debt covenants; the Partnership’s credit-facility leverage ratio was 3.11x.
Changes versus prior comparable periods
- Q3 revenue fell 9.6%, while Adjusted EBITDA rose $453M (14.7%). Nine-month revenue declined 16.3%, while Adjusted EBITDA increased $440M (4.6%). Revenue declines were largely associated with lower commodity prices and lower sales values; the filing reports that Adjusted EBITDA excludes certain non-cash and other items.
- Common-unit net income fell $433M in Q3 and $1.015B for the nine-month period. A $625M non-operating litigation-related loss recognized in Q3—associated with the Williams litigation—was a major factor, along with lower interest-rate derivative gains and higher depreciation and amortization. Prior-year impairment losses partly offset these effects.
- Segment results were mixed. Q3 Adjusted EBITDA increased in NGL/refined-products transportation and services (+$442M), crude oil transportation and services (+$245M), and interstate transportation and storage (+$82M); midstream declined $237M, primarily due to lower natural gas and NGL prices. Nine-month midstream EBITDA fell $727M, while NGL/refined-products and crude oil segments rose $755M and $290M, respectively.
- Interest expense increased to $632M in Q3 and $1.892B for the nine months, reflecting higher rates on floating-rate debt. Nine-month operating cash flow increased by $546M, including a $1.182B favorable net change in operating assets and liabilities.
Outlook, developments and risks
- Management’s 2023 capital expenditure outlook, excluding Sunoco LP and USAC, was $1.9B–$2.1B for growth and $740M–$790M for maintenance. It expects growth capital expenditures of $2B–$3B annually in future periods.
- Energy Transfer announced a quarterly common-unit distribution of $0.3125, or $1.25 annualized. The filing reports the September-quarter distribution payable November 20, 2023.
- The Crestwood merger was approved by Crestwood unitholders on October 30, after quarter-end. Crestwood holders are to receive 2.07 Energy Transfer common units per Crestwood unit; closing was expected November 3, subject to customary conditions. The filing warns that completion, integration and expected benefits are uncertain.
- Energy Transfer acquired Lotus Midstream in May for approximately $1.50B, funded with $930M cash and approximately 44.5M newly issued common units. Sunoco LP acquired 16 terminals for $111M.
- Williams litigation: the Delaware Supreme Court affirmed the judgment on October 10, 2023. Energy Transfer recorded a $625M estimated loss in Q3; the filing says an approximately $617M judgment, plus further post-judgment interest, would become effective after the mandate, while a motion for reargument was pending.
- Accrued contingent obligations were approximately $947M at September 30, compared with $200M at year-end 2022. The filing estimates up to approximately $200M of additional reasonably estimable losses beyond amounts accrued, while noting some matters cannot be estimated. Sunoco intends to appeal a Cline class-action judgment; the October 2023 judgment included approximately $104M actual damages and $75M punitive damages.
- Dakota Access continued operating while the U.S. Army Corps of Engineers prepared an environmental impact statement; a draft was published in September 2023, with a final statement and decision anticipated in 2024. Pipeline permitting, environmental requirements, rate regulation, commodity-price volatility, interest rates, counterparty performance and litigation remain relevant risks. Compliance costs under the EPA Good Neighbor Plan are uncertain; the Partnership estimated approximately 240 engines could require retrofit or replacement if the rule takes effect.
- Management stated that disclosure controls and procedures were effective as of September 30, 2023. The filing provides no formal earnings guidance.
Important facts for investors to verify
- How the Williams reargument motion, final judgment and post-judgment interest affect cash payments and the litigation accrual.
- Whether Crestwood closed on the expected terms and how unit issuance, integration and acquired results affect leverage and per-unit performance.
- Whether Adjusted EBITDA growth translates into sustained operating cash flow after working-capital movements, interest, capital spending and distributions.
- Debt refinancing costs and exposure to floating rates: the filing estimates that a 100-basis-point rate change could affect annual interest expense by up to $49M; floating-rate preferred distributions are also exposed.
- Progress and potential cost of Dakota Access permitting, environmental compliance, FERC rate proceedings and other material legal contingencies.