Energy Transfer Equity, L.P. — Form 10-Q summary
Entity note: The supplied filing is for Energy Transfer Equity, L.P. (ETE), not a registrant named Energy Transfer LP. It covers the quarter and nine months ended September 30, 2015; amounts are in millions of dollars except per-unit data.
Business context and reporting period
ETE reports consolidated results that include ETP, Sunoco LP and Lake Charles LNG. Its businesses span natural gas and liquids gathering and transport, pipelines and storage, fuel distribution and retail marketing. ETP completed its acquisition of Regency in April 2015; ETE acquired Sunoco LP’s general partner and incentive distribution rights effective July 1, 2015. These transactions affect period-to-period comparability.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $10,616 | $14,987 | $32,590 | $42,210 |
| Operating income | $650 | $822 | $2,163 | $2,305 |
| Net income | $238 | $470 | $1,231 | $1,418 |
| Net income attributable to partners | $293 | $188 | $875 | $520 |
| Limited partners’ income per unit | $0.28 | $0.17 | $0.81 | $0.47 |
| Segment Adjusted EBITDA | $1,500 | $1,471 | $4,403 | $4,286 |
- Revenue fell substantially, while Segment Adjusted EBITDA increased modestly. Lower commodity prices and related sales values affected revenue; acquired and expanded fee-based and logistics operations supported EBITDA. Segment Adjusted EBITDA is a non-GAAP measure defined by the Partnership.
- Q3 net income declined, but income attributable to partners rose: the filing reports a $55 million loss attributable to noncontrolling interests in Q3 2015 versus $282 million of income attributable to them in Q3 2014.
- Operating cash flow was $2,146 for the first nine months, down from $2,507. Investing used $7,160, including $6,688 of capital expenditures. Financing provided $5,186; cash increased $172 to $1,019.
- At September 30, cash was $1,019, current assets $6,072 and current liabilities $5,049. Long-term debt, net of current maturities, was $36,332; total reported debt was $36,347, up from $30,661 at year-end 2014. The filing reports $7.15 billion of floating-rate debt and estimates that a 100-basis-point rate increase could raise annual interest expense by up to $41 million.
- The Parent Company separately reported $69 of cash and $6,439 of long-term debt. Management notes that Parent Company-only assets are not available to satisfy subsidiary obligations. The Parent Company revolver had $570 of capacity available; subsidiaries also had revolving facilities. The Partnership and subsidiaries reported compliance with credit covenants at quarter-end.
Material changes, outlook and risks
- ETE agreed in September 2015 to a merger with The Williams Companies (WMB), expected to close in the first half of 2016 subject to approvals and other conditions. ETE disclosed a $6.05 billion secured financing commitment entered into in October to fund the cash portion; the rate is capped at 5.5%. The merger was challenged in putative stockholder lawsuits seeking to block it; defendants said they believe the claims lack merit.
- Management forecast ETP 2015 capital expenditures of $8.185–$8.735 billion for growth and $415–$490 million for maintenance. Sunoco Logistics expected approximately $2.5 billion of growth capex in 2016. Sunoco LP forecast $140–$175 million growth and $40–$45 million maintenance capex for the six months ending December 31, 2015.
- ETE announced a quarterly distribution of $0.285 per unit for Q3 2015, or $1.14 annualized on a post-split basis. The filing also reports $1.064 billion of unit repurchases during the first nine months under a $2.0 billion buyback program.
- ETE’s Regency merger-related incentive distribution reductions total $320 million over five years. The filing also details other IDR subsidies and relinquishments; investors should consider their effect on cash available to the Parent Company and subsidiaries.
- Material exposures include MTBE groundwater litigation, environmental remediation liabilities of $376, and ordinary-course litigation and regulatory matters. Management said MTBE losses were reasonably possible but could not be estimated above amounts accrued; it did not expect an adverse determination to materially affect consolidated financial position. ETP’s $536 judgment against Enterprise remained on appeal and was not recorded pending completion of the appeal process.
- Commodity-price swings, derivative valuation changes, interest rates, acquisition integration, capital needs and regulatory or environmental requirements may affect results and cash flows. The filing says there had been no material changes in primary market-risk exposures since year-end 2014, and no material changes in risk factors from the 2014 Form 10-K.
Most important facts for investors to verify
- Confirm the intended issuer: this filing is for Energy Transfer Equity, L.P. (ETE), and distinguish its consolidated figures from Parent Company-only financials.
- Assess debt growth, floating-rate exposure, subsidiary-level liquidity and the extent to which Parent Company cash depends on distributions from subsidiaries.
- Review the WMB merger’s consideration, financing, required approvals, litigation and closing status; these were prospective matters at the filing date.
- Evaluate recurring cash generation against high growth capex, distributions, buybacks and IDR subsidies; distinguish non-GAAP Segment Adjusted EBITDA from cash available for distributions.
- Track legal and environmental matters, especially MTBE claims and unrecorded or unestimable potential losses.