Business context and reporting period
Energy Transfer Equity, L.P. (ETE) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2015; amounts below are U.S. dollars. The filing covers ETE and consolidated subsidiaries, including Energy Transfer Partners (ETP), Sunoco Logistics and Lake Charles LNG. Note: the request identifies Energy Transfer LP, but the registrant in this filing is Energy Transfer Equity, L.P.
Key financial results
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 |
|---|---|---|
| Revenue | $11.594 billion | $21.974 billion |
| Operating income | $896 million | $1.513 billion |
| Net income | $772 million | $993 million |
| Net income attributable to partners | $298 million | $582 million |
| Limited partners’ net income per unit | $0.28 | $0.54 |
| Segment Adjusted EBITDA | $1.512 billion | $2.904 billion |
For the six months, operating cash flow was $1.113 billion, capital expenditures were $4.181 billion, and cash used in investing activities was $4.673 billion. Cash and cash equivalents were $1.623 billion at June 30. Consolidated debt was $34.810 billion, including $15 million current maturities; the parent revolving facility had $1.27 billion available, and the ETP revolver had no borrowings. Total current assets were $7.237 billion versus current liabilities of $5.238 billion.
Material changes versus prior comparable periods
- Second-quarter revenue fell 18% year over year, while six-month revenue fell 19%; lower natural gas, NGL, crude and refined-product sales were major contributors. These changes reflect revenue-sensitive product sales and do not by themselves indicate comparable declines in operating performance.
- Second-quarter net income attributable to partners rose to $298 million from $164 million; six-month partner-attributable net income increased to $582 million from $332 million. Continuing-operations income per limited partner unit was $0.28 for Q2 and $0.54 for six months, compared with $0.15 and $0.29, respectively.
- Segment Adjusted EBITDA increased to $1.512 billion for Q2 from $1.440 billion and to $2.904 billion for six months from $2.815 billion. ETP gross margin increased by $466 million for Q2 and $720 million for six months; management cited retail acquisitions, including Susser, higher Sunoco Logistics margins and volumes, and growth in midstream and liquids operations.
- Six-month operating cash flow declined to $1.113 billion from $1.895 billion, principally reflecting an $886 million net use of cash from operating asset and liability changes. Capital expenditures nearly doubled from $2.137 billion to $4.181 billion.
- Debt rose from $30.661 billion at year-end 2014 to $34.810 billion. The increase accompanied acquisition and growth investment, and was funded in part through debt and subsidiary equity issuances.
Outlook, management commentary, risks and unusual items
- ETP projected 2015 capital expenditures of $8.060–$8.710 billion for growth and $465–$555 million for maintenance. The filing provides no consolidated earnings or cash-flow guidance.
- ETE announced a proposal to merge with Williams Companies (WMB); the filing said success and final terms were uncertain and any transaction would require approvals and satisfaction of closing conditions.
- ETP completed its acquisition of Regency on April 30, 2015. ETE agreed to reduce incentive distributions by $320 million over five years, including $80 million in the first year and $60 million annually for the next four years.
- After quarter-end, Sunoco LP acquired Susser for a stated transaction value of $1.93 billion, and ETE agreed to acquire Sunoco LP’s general partner and IDRs from ETP in exchange for ETP unit repurchases; the transaction was expected to close in August 2015. ETE also announced a quarterly distribution of $0.265 per unit, post-split, equivalent to $1.06 annualized.
- Quarterly earnings included a $127 million gain on interest-rate derivatives, which are not designated as accounting hedges, and a $56 million income-tax benefit. Commodity-related unrealized losses and inventory valuation effects also affected reported results. Adjusted EBITDA is a non-GAAP measure.
- Contingencies include MTBE groundwater litigation, for which possible losses beyond accrued amounts could not be estimated, and environmental liabilities of $383 million. A $536 million judgment for ETP in litigation with Enterprise was not recorded because the appeal remained pending. Regency merger-related lawsuits were at preliminary stages. The filing states that credit-agreement covenants were met at June 30.
- Management cited commodity-price volatility, interest-rate exposure, working-capital swings, regulatory requirements, environmental and pipeline-safety costs, litigation, and acquisition integration as risks. It reported no material change in primary market-risk exposures from year-end 2014.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for Energy Transfer Equity, L.P., not an entity named Energy Transfer LP.
- Assess the cash conversion and funding burden: operating cash flow was below capital expenditures, with substantial reliance on borrowing and subsidiary equity issuance.
- Review debt at both parent and subsidiary levels, floating-rate exposure, facility availability, and the effect of planned growth spending and distributions.
- Track completion and financial implications of the proposed WMB transaction and the post-quarter Sunoco LP transactions.
- Monitor the unresolved legal and environmental matters, especially MTBE claims and the Enterprise appeal; disclosed possible losses are not fully estimable.
- Distinguish recurring operating performance from derivative gains and losses, inventory valuation adjustments, tax effects, and non-GAAP Adjusted EBITDA.