Energy Transfer LP — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Energy Transfer is a diversified midstream energy partnership; results include controlled subsidiaries Sunoco LP and USAC. Amounts below are in U.S. dollars unless noted.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $20.491 billion | $16.995 billion |
| Operating income | $1.846 billion | $4.069 billion |
| Net income | $1.487 billion | $3.641 billion |
| Net income attributable to partners | $1.269 billion | $3.288 billion |
| Basic / diluted income per common unit | $0.38 / $0.37 | $1.22 / $1.21 |
| Adjusted EBITDA (non-GAAP) | $3.340 billion | $5.040 billion |
| Cash from operating activities | $2.370 billion | $5.155 billion |
| Capital expenditures, net of construction contributions | $732 million | $695 million |
Revenue increased 21%, largely reflecting higher commodity prices and sales volumes. Operating income fell 55%; net income fell 59%. Adjusted EBITDA declined 34%. The principal comparison factor was Q1 2021’s exceptional Winter Storm Uri results, especially in intrastate storage and natural gas sales. Q1 2022 also included a $300 million impairment related to the planned Energy Transfer Canada sale. Calculated net margin was approximately 7.3%, versus 21.4% a year earlier; revenue includes substantial product sales and associated costs.
Segment Adjusted EBITDA rose $519 million in midstream, $83 million in crude oil transportation and services, and $53 million in NGL and refined products transportation and services. Intrastate transportation and storage fell $2.369 billion, mainly reflecting the absence of Uri-related storage and gas-sale margins. Interstate transportation and storage was flat at $453 million.
Cash and equivalents were $1.111 billion at quarter-end, up from $336 million at December 31, 2021. Total debt was $49.919 billion, compared with $49.702 billion; reported long-term debt, less current maturities and debt held for sale, was $48.826 billion. Operating cash flow fell 54%, with working-capital changes using $320 million. The partnership reported $2.02 billion available under its $5 billion revolving facility, after letters of credit; covenant leverage was 3.55x and debt covenants were met. Management reported $5.60 billion of floating-rate debt; a hypothetical 100-basis-point rate increase could add up to $56 million to annual interest expense.
Material changes, outlook and management commentary
- In March, Energy Transfer agreed to sell its 51% interest in Energy Transfer Canada for expected proceeds of about C$340 million (approximately $272 million), subject to adjustments, with closing expected by Q3 2022. The assets were classified as held for sale; the $300 million write-down was based on expected sale proceeds.
- In March, the partnership acquired the Spindletop underground storage facility for approximately $325 million. Sunoco LP’s April 1 acquisition of a transmix facility was supported by a $264 million deposit recorded at quarter-end.
- Management’s 2022 capital expenditure estimates, excluding Sunoco LP and USAC investments, were $1.8–$2.1 billion for growth and $615–$665 million for maintenance. No full-year earnings or EBITDA guidance is provided in the supplied filing text.
- In April, Energy Transfer announced a $0.20 per common unit quarterly distribution for Q1 2022 ($0.80 annualized), up from $0.175 for the prior quarter.
- Management cited favorable natural gas and NGL prices, the Enable acquisition, increased production and higher utilization as contributors to growth in several segments. The filing identifies commodity prices and volumes, regulation, project permitting and execution, weather, counterparty performance, capital-market access, litigation, environmental compliance and integration of acquisitions as risks.
Contingencies and unusual items
- Accrued probable and estimable contingencies were approximately $163 million. For certain reasonably possible matters, estimated additional losses were up to approximately $600 million; other matters could not be reasonably estimated.
- The Williams litigation had a December 2021 ruling awarding a $410 million termination fee plus certain fees and expenses; a final judgment had not yet been entered, and Energy Transfer could not predict the outcome.
- The Cline class-action order included $80.7 million in actual damages and $75 million in punitive damages. The partnership was pursuing further review; the filing describes the judgment and appeal process as ongoing.
- Dakota Access continued operating while the Army Corps of Engineers’ environmental review proceeded; the Corps estimated completion by late 2022 or early 2023. Other notable proceedings include proposed FERC penalties of $20 million and $40 million involving Rover, as well as criminal and regulatory matters related to pipeline construction and environmental issues. Outcomes and potential liabilities are uncertain.
Investor verification checklist
- Reconcile Q1 earnings and cash flow against the unusually strong Uri-affected Q1 2021 comparison, including the $300 million Canada impairment and working-capital movements.
- Check progress, final proceeds and closing adjustments for the Energy Transfer Canada sale, and the treatment of its debt and noncontrolling interests.
- Monitor debt levels, floating-rate exposure, revolving-facility availability, covenant headroom and planned capital spending.
- Review updates to the Williams and Cline cases, Rover FERC proceedings, Dakota Access permitting and other environmental or pipeline-related matters.
- Verify execution of the announced distribution and the extent to which operating cash flow supports distributions and investment plans.