Energy Transfer LP — Q2 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Energy Transfer operates a diversified U.S. midstream and energy logistics business, including transportation, storage, gathering, processing, Sunoco LP and USAC. Amounts below are in millions of dollars except per-unit data and where noted.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $25,945 | $15,101 | $46,436 | $32,096 |
| Operating income | $2,113 | $1,597 | $3,959 | $5,666 |
| Net income | $1,622 | $908 | $3,109 | $4,549 |
| Net income attributable to common unitholders | $1,220 | $539 | $2,382 | $3,824 |
| Basic earnings per common unit | $0.40 | $0.20 | $0.77 | $1.41 |
| Adjusted EBITDA (non-GAAP) | $3,228 | $2,616 | $6,568 | $7,656 |
| Net cash from operating activities | Not separately stated for the quarter | $4,724 | $7,160 |
- Q2 revenue rose about 72%, operating income about 32%, net income about 79%, and Adjusted EBITDA about 23% year over year. Higher commodity-linked sales, volumes and the Enable acquisition contributed to growth; revenue growth was substantially larger than profit growth.
- For the first half, revenue rose about 45%, but operating income fell about 30%, net income about 32%, and Adjusted EBITDA about 14%. The prior-year comparison included substantial Winter Storm Uri gains, particularly in intrastate storage and natural gas sales.
- Q2 interest expense was $578, up $12 year over year; six-month interest expense was $1,137, down $18. The filing does not present a consolidated gross-margin percentage.
Balance sheet, debt and liquidity
- At June 30, cash was $353, total assets $108,769, and total equity $40,765. Long-term debt, including current maturities, was $48,106 on the balance sheet; total debt in the debt schedule was $48,649, down from $49,702 at December 31, 2021. The filing reports debt fair value of $46.29 billion versus carrying value of $48.65 billion.
- The Five-Year Credit Facility had $2.53 billion outstanding and $2.44 billion available; the weighted-average rate was 2.68%. Sunoco LP had $625 million available on its facility. USAC reported $361 million of borrowing capacity subject to covenant compliance.
- Energy Transfer and its subsidiaries reported compliance with debt covenants; the revolving-credit-facility leverage ratio was 3.45x. Floating-rate debt was $5.33 billion; a 100-basis-point rate increase was estimated to raise annual interest expense by up to $53 million.
- First-half operating cash flow decreased by $2.44 billion year over year. The company attributed the period’s cash flow reconciliation in part to a $731 million net use from changes in operating assets and liabilities, including working-capital movements.
Material changes and capital allocation
- Q2 segment Adjusted EBITDA increased notably in midstream ($903 versus $477) and interstate transportation and storage ($397 versus $331), with Enable acquisition contributions and favorable natural gas and NGL prices among the cited drivers.
- First-half intrastate transportation and storage Adjusted EBITDA fell to $662 from $3,037, primarily reflecting the absence of Winter Storm Uri’s prior-year storage-margin and natural-gas-sale gains. Midstream increased to $1,710 from $765.
- Energy Transfer declared a $0.23-per-unit common distribution for Q2, or $0.92 annualized, up from $0.20 for Q1 2022. First-half distributions paid to partners were $1,343, versus $898 in 2021.
- 2022 capital expenditure expectations, excluding Sunoco LP and USAC, were $1.8–$2.1 billion for growth and $615–$665 million for maintenance. First-half accrual-basis capital expenditures were $1,202 million.
Outlook, transactions and risks
- The filing provides capital expenditure expectations but no specific earnings or revenue guidance. Management cited volumes, commodity prices and margins, regulation, weather, customer performance, capital access, acquisition integration and project execution among material uncertainties.
- The company agreed in August 2022 to acquire Woodford Express for approximately $485 million in cash; closing was expected by the end of Q3, subject to customary conditions. It expected approximately C$340 million (about $264 million at the June 30 exchange rate) from the planned sale of its 51% Energy Transfer Canada interest, also expected to close by Q3. The Canada assets were classified as held for sale, and a $300 million impairment was recorded in Q1.
- Other transactions included the March purchase of the Spindletop storage facility for approximately $325 million and Sunoco LP’s April acquisition of a transmix and terminal facility for $264 million.
- Legal and regulatory matters include Dakota Access Pipeline permitting and environmental review; proposed FERC penalties of $20 million in one Rover matter and $40 million in another; the Williams litigation, in which a court awarded a $410 million termination fee plus fees and expenses but final judgment and appeal timing remained unresolved; and other environmental, pipeline-construction and royalty-payment claims. Accrued contingent losses were approximately $182 million, with estimated additional reasonably possible losses up to approximately $600 million where estimable.
- A June 2022 crude pipeline incident released an estimated 4,345 barrels; approximately 3,343 barrels were recovered during initial remediation. The filing said no injuries occurred and reported a Notice of Federal Interest.
- Commodity derivatives, trading activities and counterparty performance can add earnings volatility. The filing also notes potential exposure to changing FERC rates and policies, environmental and safety requirements, and interest-rate increases.
Important facts for investors to verify
- Whether the Energy Transfer Canada sale and Woodford Express acquisition closed on the expected schedule and at the anticipated economics.
- How much of Q2’s earnings and Adjusted EBITDA improvement is recurring operating performance versus acquisition contributions, commodity-price effects and derivative marks.
- Whether working-capital needs and commodity-price swings continue to constrain operating cash flow relative to distributions and capital spending.
- Developments in the Dakota Access review, Rover FERC proceedings, Williams litigation and other disclosed contingencies, including potential cash exposure beyond accruals.
- Debt refinancing, floating-rate exposure and liquidity availability as interest rates and capital requirements change.