Energy Transfer LP — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Financial amounts are in millions of dollars unless otherwise stated. The April 1, 2021 rollup mergers occurred after quarter-end.
Business context and key financial metrics
Energy Transfer operates a diversified U.S.-focused midstream energy business, including natural gas and liquids transportation, storage, processing and marketing, as well as investments in Sunoco LP and USAC.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $16,995 | $11,627 |
| Operating income (loss) | $4,069 | $61 |
| Net income (loss) | $3,641 | ($964) |
| Net income (loss) attributable to partners | $3,288 | ($855) |
| Basic earnings (loss) per limited partner unit | $1.22 | ($0.32) |
| Adjusted EBITDA, non-GAAP | $5,040 | $2,635 |
| Cash from operating activities | $5,155 | $1,828 |
| Capital expenditures paid | $698 | $1,621 |
Revenue grew 46%; Adjusted EBITDA rose 91%. Operating margin was approximately 23.9% versus 0.5%, and Adjusted EBITDA margin was approximately 29.7% versus 22.7%. These comparisons are heavily affected by Winter Storm Uri and other unusual items.
- Q1 2021 revenue included natural gas sales of $5,124 versus $588 in the prior-year quarter, while crude sales declined to $2,988 from $3,543.
- Cash and cash equivalents were $355 at March 31, 2021, versus $367 at year-end. Current assets were $7,820 and current liabilities $7,779.
- Total debt was $47,735, down from $51,438 at December 31, 2020. Fair value of debt was estimated at $51.39 billion. The partnership reported a 3.23x leverage ratio under its revolving-credit covenant and compliance with its debt covenants.
- Available borrowing capacity included $4.08 billion under the Five-Year Credit Facility, $1.10 billion under Sunoco LP’s facility and $1.10 billion under USAC’s facility.
- Operating cash flow less reported capital expenditures was approximately $4.46 billion; working-capital movements contributed $533 million to operating cash flow. Cash used in financing was $4,532, including $3,728 of net debt repayments and $812 of distributions to partners and noncontrolling interests.
- Interest expense was $589. Floating-rate debt was $4.84 billion; management estimated a 100-basis-point rate increase could raise annual interest expense by up to $48 million.
Material changes and unusual items
- Winter Storm Uri was the principal driver of the EBITDA increase. Intrastate transportation and storage Adjusted EBITDA increased to $2,813 from $240, including year-over-year increases of $1,524 in realized storage margin, $983 in natural gas sales and $84 in retained-fuel revenue. Management said storm-related credit losses and disputed gas purchases and sales remained subject to estimates and could affect future results.
- Other segments had mixed results: interstate transportation and storage EBITDA rose $49; midstream declined $95; NGL and refined products declined $16; crude oil transportation and services declined $81; Sunoco LP declined $52; and USAC declined $6.
- Net income also reflected a $194 gain on interest-rate derivatives, compared with a $329 loss in Q1 2020. Prior-year results included $1,325 of impairment losses, versus $3 in Q1 2021. These items make the GAAP earnings comparison less indicative of underlying recurring performance.
- Debt declined mainly after repayment activity; first-quarter redemptions included $600 of 4.40% senior notes and $800 of 4.65% senior notes, funded using the Five-Year Credit Facility.
Outlook, transactions and risks
- Management expected to close the Enable Midstream acquisition in the second half of 2021, subject to customary conditions and HSR clearance. The exchange terms provide 0.8595 ET common units per Enable common unit, 0.0265 Series G preferred units per Enable preferred unit, and $10 million for Enable’s general partner. ET anticipated an FTC second request but expected unconditional clearance.
- On April 1, 2021, ET completed internal rollup mergers, assumed ETO’s debt obligations and converted ETO preferred units into ET preferred units. This reorganization was subsequent to the reporting date.
- 2021 ET capital-expenditure outlook, excluding Sunoco LP and USAC, was $1.540–$1.745 billion for growth and $515–$555 million for maintenance. Sunoco LP separately expected approximately $150 million of growth and $45 million of maintenance spending; USAC budgeted $30–$40 million for expansion and approximately $22 million for maintenance.
- ET announced a common-unit distribution of $0.1525 for Q1, equivalent to $0.61 annualized.
- Dakota Access Pipeline continued operating, but its easement had been vacated and an environmental impact statement was required. Injunctive relief remained under consideration, creating potential operational and financial risk; ET could not predict the outcome.
- Other notable contingencies include the Cline class-action judgment against Sunoco R&M, totaling $80.7 million in actual damages plus $75 million punitive damages, which the company appealed; ongoing Pennsylvania pipeline-related investigations; and FERC enforcement matters involving Rover for which potential liability could not be estimated.
- Accrued contingent obligations were approximately $49 million. For certain matters, estimated additional reasonably possible losses were up to approximately $80 million; other claims, including MTBE litigation, could not be estimated. Environmental liabilities totaled $301 million.
- FERC rate policy and proceedings, commodity-price and counterparty exposure, operational safety, regulation, litigation, customer nonpayment, project execution and acquisition integration remain important risks. Management reported no material changes to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- How much of Q1’s exceptional storm-driven EBITDA and cash generation is nonrecurring, and what credit losses or counterparty dispute settlements follow?
- Whether Dakota Access remains in service and the outcome and timing of the injunction, easement and environmental-review proceedings.
- Enable merger clearance, closing timing, unit dilution and integration effects.
- Debt reduction, liquidity and interest-rate sensitivity after the April rollup, alongside the planned growth-capital program and distribution level.
- Developments in the Cline appeal, Pennsylvania investigations, Rover enforcement proceedings and other contingencies that could change recorded accruals or create additional costs.