Energy Transfer LP — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; this annual filing reports full-year results, not a standalone fourth quarter. Energy Transfer is a diversified U.S. and Canadian energy infrastructure partnership spanning natural gas, NGLs, crude oil, refined products, fuel distribution and compression. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $38.95 billion | $54.21 billion |
| Operating income | $2.98 billion | $7.20 billion |
| Consolidated net income | $140 million | $4.83 billion |
| Net income (loss) attributable to partners | $(648) million | $3.52 billion |
| Basic and diluted income (loss) per limited partner unit | $(0.24) | $1.34 / $1.33 |
| Segment Adjusted EBITDA | $10.53 billion | $11.14 billion |
| Cash provided by operating activities | $7.36 billion | $8.06 billion |
| Consolidated debt at year-end | $51.44 billion | $51.05 billion |
Revenue fell about 28%; operating margin declined to about 7.7% from 13.3%. Operating cash flow less cash capital expenditures of $5.13 billion was approximately $2.23 billion, before acquisitions, distributions and other investing activity. Year-end cash was $367 million; current assets of $6.32 billion exceeded current liabilities of $5.92 billion. ETO’s $5 billion revolving facility had $1.79 billion available after borrowings and letters of credit; its separate $1 billion 364-day facility was undrawn. The filing reports a 4.31x leverage ratio under ETO’s credit agreement, against a 5.0x limit generally.
About $6.72 billion of consolidated debt carried variable interest rates. Management estimated that a 100-basis-point increase could raise annual interest expense by up to $67 million. Net interest expense was $2.33 billion.
Material changes and notable items
- Segment Adjusted EBITDA declined 5.5%. Crude oil transportation and services decreased $640 million; intrastate transportation and storage decreased $136 million; and interstate transportation and storage decreased $112 million. NGL and refined products transportation and services increased $136 million, midstream increased $68 million, and Sunoco LP increased $74 million.
- COVID-19-related demand reductions, lower crude volumes and narrower crude trading spreads affected results. Refined-products transportation volumes also fell, including reduced jet fuel demand. NGL transportation and fractionation volumes benefited from higher throughput and newly commissioned capacity.
- Impairment losses were $2.88 billion, primarily reflecting weaker projected cash flows amid market declines. The filing reports $2.815 billion of goodwill impairments, including $619 million at USAC, and additional fixed-asset impairments. These charges materially reduced reported earnings.
- Energy Transfer reduced its quarterly common-unit distribution from $0.305 to $0.1525 beginning with the quarter ended September 30, 2020. The annual distribution was $0.92 per unit, versus $1.22 in 2019.
- Debt refinancing included $4.5 billion of ETO notes issued in January 2020 and redemption of near-term notes. Sunoco LP issued $800 million of 4.50% notes due 2029 to refinance its 2023 notes.
Outlook, risks and contingencies
Management said field operations continued through the pandemic, but the duration and financial effects of market disruption remained uncertain. It expected lower growth capital spending and operating costs than pre-2020 levels, while expressing a positive long-term view of demand for midstream services. ETO forecast 2021 growth capital expenditures of $1.35–$1.56 billion and maintenance capital expenditures of $510–$550 million, excluding Sunoco LP and USAC. Separately, Sunoco LP expected $120 million of growth and $45 million of maintenance spending; USAC budgeted $30–$40 million of expansion and about $22 million of maintenance spending.
Shell withdrew from the Lake Charles LNG liquefaction project in March 2020. Energy Transfer said it would continue evaluating the project, potentially at reduced scale, but any final investment decision depends on market conditions, financing or equity partners and satisfactory long-term LNG offtake commitments. In February 2021, Energy Transfer announced a proposed Enable acquisition: Enable common unitholders would receive 0.8595 ET common units per unit, subject to unitholder and regulatory approvals.
Key risks include high leverage and refinancing needs, commodity and volume exposure, customer concentration and counterparty credit, regulatory rate decisions, pipeline safety and environmental compliance, and climate-related regulation. The Dakota Access Pipeline remained in operation while litigation and environmental review continued; the court of appeals affirmed the requirement for an environmental impact statement and vacated the easement, but overturned the shutdown order. Other significant matters include Mariner East and Revolution pipeline proceedings, the Williams litigation, and a Cline class-action judgment under appeal that included $80.7 million of actual damages and $75 million of punitive damages. Environmental liabilities accrued were $306 million at year-end. The filing states that the possible loss in the remaining MTBE cases could not be estimated beyond accrued amounts.
The company reported effective internal control over financial reporting and received an unqualified audit opinion on its financial statements and internal controls.
Investor verification points
- Check the latest status and potential operational impact of Dakota Access litigation, the required environmental review and the easement.
- Assess the Enable transaction’s approval status, exchange terms, financing and integration risks.
- Evaluate the sustainability of the reduced distribution against cash generation, capital spending, debt maturities and covenant headroom.
- Review impairment assumptions and remaining goodwill exposure; $368 million of year-end goodwill was in reporting units with fair value less than 20% above carrying value.
- Track the Lake Charles LNG project’s offtake, partner and financing progress, and material pipeline, environmental and litigation exposures.