Energy Transfer Equity, L.P. — Q1 2013 Form 10-Q
Filing identity: The supplied filing is for Energy Transfer Equity, L.P. (ETE), not an entity named Energy Transfer LP. It covers the quarter ended March 31, 2013; the financial statements are unaudited and consolidated.
Business context and reporting period
ETE is a partnership whose operating businesses include natural gas transportation, storage and midstream services, NGL infrastructure, retail fuel marketing, and investments in ETP, Regency and Sunoco Logistics. Comparisons with Q1 2012 are materially affected by acquisitions and other transactions: Southern Union was acquired in March 2012, while Sunoco and control of Sunoco Logistics were acquired in October 2012. As a result, Q1 2012 does not include comparable full-quarter results for those businesses.
Key financial metrics
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $11.179 billion | $1.670 billion |
| Operating income | $531 million | $184 million |
| Income from continuing operations | $300 million | $962 million |
| Net income | $322 million | $961 million |
| Net income attributable to partners | $90 million | $166 million |
| Net income per limited partner unit | $0.32 | $0.73 |
| Segment Adjusted EBITDA | $1.052 billion | $581 million |
| Operating cash flow | $330 million | $79 million |
| Capital expenditures | $761 million | $595 million |
At March 31, 2013, cash was $614 million, total assets were $50.140 billion, and consolidated debt was $22.954 billion, compared with $22.053 billion at year-end 2012. Current assets of $6.627 billion exceeded current liabilities of $6.127 billion. The filing reports $4.05 billion of floating-rate debt; a hypothetical 100-basis-point rate increase would add about $40 million to annual interest expense.
Material changes versus the prior period
- Revenue and Segment Adjusted EBITDA increased substantially, but the comparison is not like-for-like because of the Sunoco, Sunoco Logistics and Southern Union transaction effects. Sunoco’s retail marketing and logistics activities contributed significant sales, which carry high product costs.
- Partner-attributable net income and per-unit earnings declined from Q1 2012. The prior-year quarter included a $1.056 billion gain on deconsolidation of the propane business; it also included $62 million of bridge-loan fees and a $115 million debt-extinguishment loss. These unusual items make headline net income comparisons especially misleading.
- Operating cash flow rose to $330 million from $79 million. Investing used $700 million, principally reflecting $761 million of capital expenditures; financing provided $612 million. Cash increased by $242 million during the quarter.
- Consolidated debt rose by approximately $901 million from December 31, 2012. In January, ETP and Sunoco Logistics issued senior notes, using proceeds mainly to repay revolving-credit borrowings and for general partnership purposes.
- Segment results were mixed: interstate transportation and storage increased to $297 million of Segment Adjusted EBITDA from $80 million, while intrastate transportation and storage decreased to $132 million from $192 million. Midstream declined to $79 million from $89 million; NGL transportation and services rose to $80 million from $50 million. Retail marketing and Sunoco Logistics were new comparative segments in 2013.
Outlook, commentary, risks and contingencies
- ETE’s stated objective is to grow distributable cash flow through expansion of existing infrastructure and strategic acquisitions. The filing gives no consolidated earnings or distribution guidance.
- ETP projected, for the remainder of 2013, growth capital expenditures of $1.20–$1.45 billion and maintenance spending of $290–$350 million. Regency expected 2013 growth capital expenditures of $684 million and maintenance capital expenditures of $44 million. Funding may include operating cash, borrowings and debt or equity issuance.
- After quarter-end, on April 30, 2013, ETP acquired ETE’s interest in Holdco for about 49.5 million ETP units and $1.40 billion cash, subject to closing adjustments. ETE agreed to waive certain IDR payments on the newly issued units. Also on April 30, Southern Union contributed SUGS to Regency for units and cash consideration. Neither transaction affected the March 31 balance sheet or Q1 results.
- ETE and Enbridge announced plans to jointly develop a crude pipeline project by converting certain Trunkline segments, subject to regulatory approval and sufficient commitments. The project was expected to enter service in 2015, with stated capacity of 420,000–660,000 barrels per day, depending on crude slate and subscriptions.
- Commodity-price volatility, derivative mark-to-market changes, interest rates, counterparty performance, weather, integration of acquisitions and regulatory requirements may affect results and cash generation. Management said market-risk exposures and management practices had not materially changed since year-end.
- Environmental liabilities were $205 million at March 31. Accrued litigation and other contingent obligations were approximately $42 million. Disclosed matters include MTBE groundwater litigation, a pending Texas Southern Union merger-related case, claims following a February 2013 gas incident in Missouri, and a Massachusetts regulatory complaint concerning environmental-cost recoveries. The filing states that some potential losses cannot be estimated clearly.
- Management reported compliance with credit-agreement covenants and effective disclosure controls as of March 31. It reported no material changes to the risk factors in the 2012 Form 10-K.
Important facts for investors to verify
- Confirm the filing issuer: this 10-Q is for Energy Transfer Equity, L.P. (ETE), not Energy Transfer LP.
- Assess the effect of acquisitions, divestitures and discontinued operations when comparing Q1 2013 with Q1 2012; distinguish recurring earnings from prior-year transaction gains and other unusual items.
- Review debt, refinancing needs, available revolving-credit capacity and interest-rate sensitivity, including the impact of the April 2013 Holdco transaction.
- Track whether planned capital spending, pipeline projects and the SUGS contribution generate expected cash flows, and how they are funded.
- Monitor the disclosed environmental and legal matters, related reserves, and commodity and counterparty risks for changes in potential exposure.