Energy Transfer LP — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Energy Transfer is a diversified midstream partnership with natural gas and liquids transportation, storage, gathering and processing businesses, as well as fuel retailing and compression operations. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $16.664 billion | $9.955 billion | $48.760 billion | $28.920 billion |
| Operating income | $1.437 billion | $244 million | $7.103 billion | $1.641 billion |
| Net income (loss) | $907 million | $(401) million | $5.456 billion | $(693) million |
| Net income (loss) attributable to partners | $635 million | $(655) million | $4.549 billion | $(1.157) billion |
| Basic earnings (loss) per common unit | $0.20 | $(0.24) | $1.61 | $(0.43) |
| Adjusted EBITDA (non-GAAP) | $2.579 billion | $2.866 billion | $10.235 billion | $7.939 billion |
Q3 Adjusted EBITDA declined 10% year over year, while nine-month Adjusted EBITDA rose 29%. Revenue growth largely reflects higher commodity prices and sales volumes; revenue is affected by substantial product costs and is not, by itself, a measure of operating performance. The filing does not provide a consolidated gross-margin percentage.
Cash flow: Nine-month operating cash flow was $9.423 billion, versus $5.455 billion in 2020. Cash used in investing activities was $1.907 billion, including $2.046 billion of capital expenditures before contributions in aid of construction. Cash used in financing was $7.570 billion. Cash declined to $313 million from $367 million at year-end 2020.
Debt and liquidity: Total debt was $45.471 billion at September 30, 2021, down from $51.438 billion at December 31, 2020; long-term debt was $44.793 billion and current maturities were $678 million. The $5.0 billion revolving credit facility had $599 million outstanding and $4.37 billion available after letters of credit. The partnership reported compliance with debt covenants and a 3.15x revolving-credit-facility leverage ratio. Current assets were $9.049 billion and current liabilities were $9.834 billion.
Distributions: ET announced a common-unit distribution of $0.1525 for the quarter, or $0.61 annualized. Preferred-unit distributions are separate; ET issued $889 million of Series H preferred units in June 2021.
Material changes and drivers
- Winter Storm Uri materially boosted nine-month results. In the intrastate transportation and storage segment, storm-related realized storage margin increased $1.52 billion year over year; realized natural gas sales and retained fuel revenue increased $936 million and $114 million, respectively. Management cautioned that credit-loss estimates and counterparty disputes could affect future results.
- Q3 Adjusted EBITDA was lower primarily because of shipper contract expirations and a shipper bankruptcy in interstate transportation, higher utilities and employee costs in NGL and refined-products operations, and weaker crude-oil acquisition and marketing margins.
- 2020 comparisons included substantial impairments: $1.474 billion in Q3 and $2.803 billion for the first nine months, versus no Q3 2021 impairment and $11 million for the first nine months of 2021. This contributed to the year-over-year swing from losses to profits.
- The April 1 Rollup Mergers combined ETO and Sunoco Logistics Operations into ET, transferred ETO debt to ET and converted ETO preferred units into ET preferred units, affecting balance-sheet and equity comparisons.
- Debt declined by about $6.0 billion during the first nine months. ET repaid and terminated its $2.0 billion term loan; it planned to redeem $1.9 billion of notes in Q4 using its revolving facility.
Outlook, risks and contingencies
- Capital spending: 2021 expectations, excluding Sunoco LP and USAC investments, were $1.525–$1.735 billion for growth and $505–$550 million for maintenance capital expenditures. Sunoco LP separately expected about $150 million of growth and $45 million of maintenance spending; USAC budgeted $30–$40 million of expansion and about $20 million of maintenance spending.
- Enable acquisition: ET expected to close the merger in Q4 2021, subject to customary conditions and FTC review. The FTC had issued a Second Request for information. The filing describes this as management’s expectation, not a completed transaction.
- Dakota Access Pipeline: The pipeline continued operating while the U.S. Army Corps of Engineers prepared an environmental impact statement, then estimated for completion by the end of 2022. Further proceedings could affect operations; timing and outcome were uncertain.
- Legal and environmental exposure: Accrued contingencies were approximately $130 million. For certain matters, reasonably estimable additional losses were up to approximately $80 million; other claims could not be estimated. Environmental liabilities totaled $297 million. The filing also describes an appeal of an $80.7 million class-action award and $75 million punitive-damages award in the Cline case.
- Pennsylvania pipeline matters: In October 2021, after quarter-end, the Pennsylvania Attorney General filed 47 misdemeanor charges and one felony charge related to alleged industrial-waste discharges and reporting. ET stated it would defend itself vigorously.
- Other key risks include commodity-price and counterparty exposure, regulatory rate decisions, pipeline safety and permitting, cybersecurity, and the ability to execute and integrate acquisitions. ET disclosed no material change in its primary market-risk exposures since year-end 2020.
Most important facts for investors to verify
- How much of nine-month earnings and cash generation is sustainable after the one-time Winter Storm Uri benefits and related estimates or disputes are resolved.
- Whether the Enable merger closed as expected, and its eventual financing, unit dilution and operating contribution.
- Progress on Dakota Access’s environmental review and any developments affecting its continued operation.
- Outcomes and potential financial effects of the Cline appeal, Pennsylvania proceedings, and other disclosed litigation and contingencies.
- Debt maturities, use of revolving-credit capacity, covenant headroom and delivery of the stated 2021 capital-spending plans.
- Whether Q3’s lower Adjusted EBITDA reflects persistent segment pressures, including contract expirations, shipper credit issues, operating costs and crude-marketing margins.