Energy Transfer LP — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited. Energy Transfer is a diversified U.S. midstream partnership, with natural gas and liquids transportation, storage, processing, marketing, and related businesses. On April 1, it completed internal “Rollup Mergers,” combining ETO into ET and moving former ETO preferred units and debt to ET.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $15.101 billion | $7.338 billion | $32.096 billion | $18.965 billion |
| Operating income | $1.597 billion | $1.336 billion | $5.666 billion | $1.397 billion |
| Net income (loss) | $908 million | $672 million | $4.549 billion | $(292) million |
| Net income attributable to partners | $626 million | $353 million | $3.914 billion | $(502) million |
| Limited partner earnings per unit, basic and diluted | $0.20 | $0.13 | $1.41 | $(0.19) |
| Adjusted EBITDA (non-GAAP) | $2.616 billion | $2.438 billion | $7.656 billion | $5.073 billion |
| Cash provided by operating activities | Not separately stated for Q2 | $7.160 billion | $3.159 billion |
Q2 revenue rose sharply, largely reflecting changes in commodity prices and sales activity; revenue growth was not matched by an equivalent increase in operating income. Adjusted EBITDA increased 7% in Q2 and 51% for the first half. The first-half comparison was especially affected by Winter Storm Uri, including unusually high intrastate gas storage margins and sales. The filing does not provide a single consolidated margin figure.
Cash, debt, and liquidity
- At June 30, cash was $282 million, compared with $367 million at December 31, 2020. Current assets were $8.208 billion and current liabilities were $8.547 billion.
- Total debt was $46.286 billion, down from $51.438 billion at year-end 2020. Long-term debt, net of current maturities, was $45.612 billion; current maturities were $674 million. First-half debt repayments exceeded borrowings, resulting in a reported $5.18 billion net debt reduction.
- Available borrowing capacity included $4.02 billion under ET’s five-year facility, $1.13 billion under Sunoco LP’s facility, and $1.13 billion under USAC’s facility. ET reported compliance with debt covenants; its revolving-credit-facility leverage ratio was 3.14x.
- First-half investing cash outflow was $1.329 billion, including $1.429 billion of cash capital expenditures. Financing cash outflow was $5.916 billion, including debt repayments and partner and noncontrolling-interest distributions.
- ET declared a common-unit distribution of $0.1525 for Q2, or $0.61 annualized. In June, it issued 900,000 Series H preferred units for $900 million gross proceeds, using proceeds partly to repay its term loan.
Material changes and management commentary
- Winter Storm Uri was a major first-half earnings driver. ET reported a $1.52 billion year-over-year increase in realized intrastate storage margin and a $972 million increase in realized natural gas sales, primarily from storm-related activity. Management cautioned that credit-loss estimates and disputed gas purchases and sales could affect future results.
- Q2 Adjusted EBITDA gains included favorable natural gas and NGL prices in midstream and increased NGL exports, including recently commissioned assets. Lower interstate results reflected shipper contract expirations and a shipper bankruptcy. Crude oil transportation and USAC results also weakened in the first half.
- ET expected the Enable Midstream acquisition to close in the second half of 2021, subject to customary conditions and FTC review. The FTC had issued a Second Request for information; ET said it continued to expect unconditional clearance. The proposed consideration includes 0.8595 ET common units per Enable common unit.
- For 2021, ET forecast growth capital expenditures of $1.545–$1.750 billion and maintenance capital expenditures of $520–$560 million, excluding investments in Sunoco LP and USAC. Sunoco LP separately expected approximately $150 million of growth and $45 million of maintenance capital expenditures; USAC budgeted $30–$40 million of expansion and approximately $22 million of maintenance capital expenditures.
- In July and August, Sunoco LP agreed to acquire nine refined-product terminals for approximately $255 million, with closing expected in Q4 2021.
Risks, contingencies, and unusual items
- Winter Storm Uri’s final credit-loss and counterparty-dispute outcomes remain uncertain and could materially affect future financial results.
- Dakota Access Pipeline continued operating while the Army Corps of Engineers prepares an environmental impact statement expected by March 2022. A court denied an injunction in May 2021; litigation risk and possible future challenges remain.
- ET disclosed $88 million of accrued contingencies and estimated reasonably possible additional losses of up to approximately $80 million where estimable. Some matters, including MTBE litigation, have no clear estimate of possible losses beyond accruals.
- In the Cline class action, a court awarded $80.7 million in actual damages and $75 million in punitive damages, plus attorneys’ fees sought by the class. The subsidiary appealed and was awaiting oral argument; the outcome is uncertain.
- Environmental liabilities were $308 million at June 30. Pennsylvania investigations and proceedings tied to pipeline construction and the Revolution pipeline incident remain relevant risks. The filing also identifies cybersecurity attacks as a risk that could disrupt operations and cause financial or other harm.
- Market exposure includes $3.39 billion of floating-rate debt; a hypothetical 100-basis-point rate increase would increase annual interest expense by up to $34 million. ET also reported substantial interest-rate derivative fair-value sensitivity.
Most important facts for investors to verify
- How much of first-half earnings and cash generation from Winter Storm Uri is nonrecurring, and what credit losses or disputed counterparty amounts remain unresolved?
- Whether the Enable acquisition receives regulatory clearance, closes on the expected terms and timeline, and delivers expected benefits without materially increasing leverage or unit dilution.
- Debt repayment and liquidity trends, including maturities, facility availability, covenant headroom, and the cost of preferred distributions.
- Progress and potential financial exposure in Dakota Access, Cline, pipeline-related investigations, and other material litigation.
- Whether forecast capital spending, project commissioning, and the maintained $0.1525 quarterly common-unit distribution are supported by recurring cash flows rather than unusual commodity or storm effects.