Business context and reporting period
Energy Transfer LP (NYSE: ET) filed this Form 10-K for the fiscal year ended December 31, 2021; it is an annual report, not a standalone fourth-quarter report. The partnership operates a diversified U.S. and Canadian energy infrastructure business spanning natural gas gathering, processing, transportation and storage; NGL, crude oil and refined products pipelines and terminals; and controlled investments in Sunoco LP and USAC.
In December 2021, Energy Transfer completed its acquisition of Enable Midstream Partners, issuing common and Series G preferred units. Because closing occurred December 2, 2021, 2021 consolidated results include only approximately one month of Enable operations.
Key financial results
Amounts are in U.S. dollars; financial figures are in billions unless otherwise noted.
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Total revenue | $67.417 | $38.954 | Up $28.463; includes substantial commodity sales, so revenue growth is not equivalent to margin growth. |
| Operating income | $8.792 | $2.980 | Up $5.812. |
| Net income | $6.687 | $0.140 | 2020 included $2.880 billion of impairment losses. |
| Net income attributable to partners | $5.470 | $(0.648) | 2021 included $0.285 billion attributable to preferred unitholders. |
| Basic and diluted income (loss) per common limited partner unit | $1.89 | $(0.24) | Reported per-unit results. |
| Adjusted EBITDA | $13.046 | $10.531 | Up 24%; non-GAAP measure defined by the partnership. |
| Cash provided by operating activities | $11.162 | $7.361 | Net income was $6.687 billion; cash flow also reflects non-cash items and working-capital movements. |
| Cash used in investing activities | $2.775 | $4.898 | 2021 capital expenditures were $2.822 billion before construction contributions and other adjustments. |
| Net cash used in financing activities | $8.418 | $2.387 | Included a $6.051 billion net reduction in debt and $1.898 billion of partner distributions. |
Segment Adjusted EBITDA
| Segment | 2021 | 2020 | Notable driver |
|---|---|---|---|
| Intrastate transportation and storage | $3.483 billion | $0.863 billion | Increase largely reflects Winter Storm Uri. |
| Interstate transportation and storage | $1.515 billion | $1.680 billion | Lower shipper volumes, contract expirations and bankruptcy impacts. |
| Midstream | $1.868 billion | $1.670 billion | Favorable natural gas and NGL prices, partly offset by storm impacts and costs. |
| NGL and refined products transportation and services | $2.828 billion | $2.802 billion | Higher export and transportation activity offset by increased operating costs. |
| Crude oil transportation and services | $2.023 billion | $2.258 billion | Lower Texas pipeline tariffs and weaker crude acquisition and marketing results. |
| Investment in Sunoco LP | $0.754 billion | $0.739 billion | Relatively steady segment result. |
| Investment in USAC | $0.398 billion | $0.414 billion | Lower revenue-generating compression horsepower. |
Debt and liquidity
- Consolidated debt was $49.702 billion at year-end, compared with $51.438 billion in 2020; the filing excludes debt of unconsolidated joint ventures from this total.
- Cash and cash equivalents were $336 million. The $5.0 billion Five-Year Credit Facility had $2.94 billion drawn and $2.03 billion available, net of letters of credit; its weighted-average interest rate was 1.13%.
- Current maturities of long-term debt were $680 million. The filing lists $1.827 billion of 2022 debt maturities before subsequent repayments; Energy Transfer redeemed $1.9 billion of notes in late 2021 and redeemed a further $300 million of notes in February 2022.
- The partnership reported a 3.07-to-1 leverage ratio under its credit agreement, below its 5.0-to-1 limit (generally increased to 5.5-to-1 during a specified acquisition period). It stated that it was compliant with debt covenants at December 31, 2021.
- Interest expense, net of capitalized interest, was $2.267 billion. Approximately $5.26 billion of debt was variable-rate; management estimated a 100-basis-point rate increase could raise annual interest expense by up to $51 million.
Material changes versus the prior comparable period
- Winter Storm Uri materially boosted 2021 results, particularly intrastate storage margin, which rose $1.510 billion year over year. Natural gas sales and retained fuel revenues in that segment increased $950 million and $132 million, respectively. Management described these effects as one-time and noted that credit-loss estimates and counterparty disputes remain uncertain.
- Revenue and operating cash flow rose substantially from 2020, while total capital expenditures fell from $5.130 billion to $2.822 billion. Results also benefited from recovering demand and prices, new export capacity and acquisitions.
- 2020 included $2.880 billion of impairment losses, including goodwill impairments; 2021 impairment losses were $21 million. This comparison materially affects reported net income.
- Energy Transfer acquired Enable in December and assumed $3.18 billion of Enable senior notes. The acquisition added assets and expanded the natural gas business, but its brief inclusion in 2021 limits year-over-year comparability.
- Common-unit distributions fell from $0.3050 to $0.1525 per unit per quarter beginning with the September 2020 quarter, remained at that level through the September 2021 quarter, and increased to $0.1750 for the December 2021 quarter, payable in February 2022.
Guidance, management commentary, risks and unusual items
- Management said it had ample liquidity and did not anticipate near-term liquidity concerns. It expected a lower level of growth capital spending than in prior years, while continuing to assess projects and acquisitions and emphasizing balance-sheet strength.
- For 2022, Energy Transfer forecast $1.6–$1.9 billion of growth capital and $615–$665 million of maintenance capital, excluding investments in Sunoco LP and USAC. Sunoco LP separately expected at least $150 million growth and about $50 million maintenance capital; USAC budgeted $110–$120 million expansion and about $23 million maintenance capital.
- Lake Charles LNG remained under development without a final investment decision. The partnership was seeking long-term LNG offtake commitments and potential equity partners; it was evaluating a smaller two-train design and had requested a FERC construction-deadline extension to December 2028.
- Major risks include commodity-price and demand volatility, COVID-19-related disruption, successful Enable integration, significant indebtedness, customer concentration, regulatory and pipeline-safety requirements, environmental and climate-related costs, extreme weather, cybersecurity, and the ability to fund and complete growth projects.
- Material legal matters include the Williams litigation: a Delaware court ruled in December 2021 for Williams and awarded the contractual $410 million termination fee plus certain fees and expenses; final judgment had not been entered, and Energy Transfer said it could not predict the appeal or ultimate outcome. Rover faces proposed FERC penalties of $20 million and $40 million in separate proceedings; the company contests the allegations, and a contractor indemnity is cited for the latter matter. The Dakota Access Pipeline remained operating while the USACE environmental impact statement process continued, then expected by the end of 2022.
- Environmental liabilities accrued were $293 million at year-end, versus $306 million in 2020. Other contingent-obligation accruals were $144 million; the filing estimates additional reasonably possible losses of up to approximately $550 million where estimable, while some matters cannot be estimated.
- The 10-K reports unqualified audit opinions on the financial statements and internal control. Enable was excluded from management’s year-end internal-control assessment while integration proceeded.
Important facts for investors to verify
- How much of 2021 earnings and cash flow is sustainable after excluding Winter Storm Uri’s exceptional storage and gas-trading gains, and after resolving related receivable and counterparty disputes?
- Whether Enable integration delivers expected benefits, and how its full-year contribution, purchase-price allocation and assumed debt affect leverage and cash flow.
- Debt maturities, refinancing plans, variable-rate exposure, covenant headroom and revolver availability, including any post-year-end debt repayments.
- The status, amount and timing of the Williams judgment and Rover enforcement proceedings, the Dakota Access EIS and related litigation, and other material claims.
- Whether 2022 capital spending, project commitments and distributions remain supportable from recurring operating cash flow, rather than commodity-related or nonrecurring gains.