Business context and reporting period
Energy Transfer Equity, L.P. (ETE) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2017. The filing covers ETE and consolidated subsidiaries, including ETP, Sunoco LP and Lake Charles LNG; it is not a filing by Energy Transfer, LP. The April 2017 Sunoco Logistics merger and the classification of Sunoco LP’s U.S. retail business as discontinued operations affect comparability.
Key financial metrics
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue from continuing operations | $9.474 billion | $7.705 billion | $27.637 billion | $21.227 billion |
| Operating income | $986 million | $646 million | $2.506 billion | $2.146 billion |
| Net income | $804 million | $41 million | $1.211 billion | $801 million |
| Net income attributable to partners | $252 million | $209 million | $703 million | $762 million |
| Basic net income per limited partner unit | $0.22 | $0.20 | $0.63 | $0.72 |
| Segment Adjusted EBITDA | $1.909 billion | $1.504 billion | $5.226 billion | $4.467 billion |
For the nine months, operating cash flow was $3.304 billion versus $2.221 billion; capital expenditures were $6.102 billion versus $5.877 billion. Investing activities used $4.760 billion, compared with $6.084 billion in 2016. Cash and cash equivalents were $469 million at September 30, 2017.
Consolidated debt had a carrying amount of $45.211 billion at September 30, 2017, up from $43.802 billion at December 31, 2016; long-term debt, less current maturities, was $44.495 billion. Parent-company revolver borrowings were $1.19 billion, with $309 million available. The ETLP facility had $2.06 billion outstanding as commercial paper. Sunoco LP’s revolver had $644 million outstanding and $847 million unused availability. The filing states that the Partnership and subsidiaries complied with their credit-agreement covenants.
Material changes versus comparable periods
- Q3 revenue rose 23% and operating income rose 53% year over year; Segment Adjusted EBITDA increased by $405 million. Management cited higher crude and NGL volumes and margins, the Bakken Pipeline entering service, Mariner East ramp-up and acquisitions, partly offset by weaker demand and contract changes on certain interstate pipelines.
- Nine-month revenue increased 30% and Segment Adjusted EBITDA increased $759 million. Interest expense rose $135 million to $1.471 billion, primarily reflecting higher debt and Sunoco LP financing costs.
- Nine-month partner-attributable income declined despite higher consolidated net income. The retail divestment produced a $264 million discontinued-operations loss, including goodwill impairment charges of $320 million in Q2 and $44 million in Q3. In 2016, ETE recorded a $308 million impairment of an unconsolidated affiliate.
- Q3 continuing-operations income included a $154 million deferred tax gain from an internal restructuring. The nine-month tax expense also included a $68 million one-time charge related to state tax apportionment changes after the merger.
Outlook, commentary, risks and unusual items
- Sunoco LP agreed to sell approximately 1,112 operated retail fuel outlets and related assets to 7-Eleven for $3.3 billion; closing was expected in Q4 2017 or early Q1 2018. Additional Stripes sites remained under marketing. Completion, proceeds and any continuing obligations remained uncertain.
- ETP’s sale of a 49.9% interest in Rover Holdco to Blackstone closed in October 2017; ETP retained 50.1%. Rover construction and environmental matters remain relevant to project execution.
- In October, ETE issued $1 billion of 4.25% notes due 2023 and amended its term loan to reduce interest margins. ETP also redeemed $1.2 billion principal of notes, paying approximately $1.23 billion including call premiums.
- The Dakota Access Pipeline was permitted to remain operating during the Army Corps’ additional review, then expected to be completed by April 2018. ETE said it could not assure the outcome of related litigation.
- Other material proceedings include BP’s FERC complaint, where an administrative law judge recommended remedies including $13 million in damages but a final FERC decision was pending; environmental enforcement matters involving pipeline releases and construction; Williams litigation, with a $410 million termination-fee claim still pending; and the reversal on appeal of ETP’s $536 million Enterprise judgment, with ETP intending to seek Texas Supreme Court review.
- No material changes to the previously disclosed risk factors were reported. Management described commodity trading and derivative activities as potential sources of significant period-to-period earnings volatility.
Important facts for investors to verify
- Confirm the filing entity: this is Energy Transfer Equity, L.P., not Energy Transfer, LP.
- Track the 7-Eleven divestiture’s closing, final proceeds, remaining site sales and any retained liabilities.
- Assess debt maturities, refinancing and liquidity across ETE and subsidiaries, including the effect of post-quarter debt transactions.
- Review progress, cost and permitting status for Rover, Mariner East and Dakota Access, alongside related litigation and environmental contingencies.
- Distinguish recurring operating performance from the deferred tax gain, retail goodwill impairments, discontinued operations and merger-related comparability effects.