Energy Transfer LP — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Dollar amounts are in millions except per-unit data. Energy Transfer is a diversified U.S. midstream partnership; consolidated results include Sunoco LP and USAC.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $18,995 | $20,491 | Down 7.3% |
| Operating income | $2,062 | $1,846 | Up $216 |
| Net income | $1,447 | $1,487 | Down $40 |
| Net income attributable to common unitholders | $1,003 | $1,162 | Down $159 |
| Basic / diluted earnings per common unit | $0.32 / $0.32 | $0.38 / $0.37 | Lower |
| Adjusted EBITDA (non-GAAP) | $3,433 | $3,340 | Up 2.8% |
| Cash from operating activities | $3,350 | $2,370 | Up $980 |
| Capital expenditures paid, net of construction contributions | $837 | $732 | Up $105 |
Operating margin was approximately 10.9% of revenue, compared with 9.0% in Q1 2022. The improvement in operating income primarily reflects the prior-year $300 impairment charge; Q1 2023 net income nevertheless declined, partly due to higher interest expense, derivative losses and income tax expense. Operating cash flow benefited from an $801 working-capital inflow, versus a $320 outflow in the prior-year quarter.
Balance sheet at March 31, 2023: Cash was $330; current assets were $11,370 and current liabilities $10,162. Long-term debt, excluding current maturities, was $47,229, down from $48,260 at year-end 2022. Total debt was $47,231. The Partnership reported $2.96 billion of notes due on or before March 31, 2024, classified as long-term based on management’s intent and ability to refinance.
Energy Transfer’s revolving facility had $1.96 billion outstanding and $3.01 billion available; Sunoco LP had $693 million available under its facility. USAC reported $891 million of facility availability, with $375 million of borrowing capacity subject to covenant compliance. The Partnership and subsidiaries were in compliance with debt covenants; the revolving-credit-facility leverage ratio was 3.26x. Floating-rate debt was $4.29 billion; a 100-basis-point increase would increase annual interest expense by an estimated maximum of $43 million.
Material changes and operating drivers
- Consolidated Adjusted EBITDA rose $93, led by NGL and refined products transportation and services, up $239, and interstate transportation and storage, up $83. Higher volumes, rates, exports and optimization supported these businesses.
- Midstream Adjusted EBITDA fell $166, mainly from weaker natural gas and NGL prices and higher operating costs, partly offset by higher fee-based throughput.
- Crude oil transportation and services Adjusted EBITDA declined $67, primarily because of lower crude acquisition and marketing optimization gains. Intrastate transportation and storage declined $35.
- Revenue fell despite higher crude sales and transportation fees, mainly reflecting lower NGL and natural gas sales. The prior-year quarter also included $120 of favorable Sunoco LIFO inventory valuation adjustments versus $29 in Q1 2023.
- Interest expense increased $60 year over year, reflecting higher rates on floating-rate debt, partly offset by a lower aggregate debt balance and other factors.
Outlook, distributions and notable events
- For 2023, management expected Energy Transfer growth capital expenditures of $1.9–$2.1 billion and maintenance capital expenditures of $740–$790 million, excluding investments in Sunoco LP and USAC. Sunoco LP planned at least $150 million of growth and about $65 million of maintenance capital expenditures; USAC planned $260–$270 million of expansion and about $26 million of maintenance spending.
- No revenue or earnings guidance is provided in the supplied filing text. Management said distributions and obligations depend on future performance and conditions, including commodity prices, demand, weather, regulation, capital availability and operating results.
- The common-unit distribution for the March 2023 quarter was declared at $0.3075 per unit, or $1.23 annualized, versus $0.3050 for the December 2022 quarter.
- After quarter-end, on May 2, Energy Transfer acquired Lotus Midstream for $900 million cash plus approximately 44.5 million newly issued common units. On May 1, Sunoco LP acquired 16 terminals for $110 million. These transactions are not reflected in Q1 results.
Risks, contingencies and unusual items
- Accrued contingent obligations were approximately $217 at March 31. Where estimable, additional reasonably possible losses were estimated at up to approximately $800; some matters could not be estimated. These amounts and outcomes are uncertain.
- The Williams litigation resulted in a judgment of approximately $601 plus post-judgment interest; Energy Transfer appealed. In the Cline class action, the subsidiary paid approximately $161 in December 2022 while continuing to pursue appeals.
- FERC proposed civil penalties of $20 in the Rover Stoneman House matter and $40 in the Rover Tuscarawas matter. The Stoneman proceeding was stayed pending further court proceedings; the Tuscarawas outcome could not be assessed, and contractors had agreed to indemnify the Partnership for related losses.
- The Dakota Access Pipeline continued operating while the Army Corps of Engineers prepared an environmental impact statement; Energy Transfer anticipated a draft in June 2023, subject to delay. The Partnership said it could not predict the effect or timing of future proceedings.
- Panhandle’s rate-case proceedings remain subject to regulatory and appellate developments. FERC rate policy changes or shipper challenges could affect regulated pipeline revenue; the impact was uncertain.
- Commodity trading and derivatives can cause material period-to-period earnings volatility. The filing reported no material change in primary market-risk exposures since year-end.
Most important facts for investors to verify
- Whether operating cash flow remains strong after separating the favorable working-capital movement from recurring cash generation.
- How the Lotus Midstream acquisition’s cash consideration and unit issuance affect leverage, unit count and subsequent-period results.
- Debt refinancing plans and interest-rate exposure, particularly given the near-term notes classified as long-term and floating-rate borrowings.
- Progress and potential financial effects of the Williams, Cline, Rover/FERC, Dakota Access and pipeline-rate matters.
- Whether improved EBITDA in transportation and NGL services offsets continued exposure to commodity prices, marketing margins and operating-cost inflation.