Energy Transfer LP (NYSE:ET) Q1 2024 Earnings Call Transcript May 8, 2024
Energy Transfer LP misses on earnings expectations. Reported EPS is $0.32 EPS, expectations were $0.3672. Energy Transfer LP isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Energy Transfer LP First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tom Long, CEO of Energy Transfer. Please go ahead.
Tom Long: Thank you, operator, and good afternoon, everyone. And welcome to the Energy Transfer’s first quarter 2024 earnings call. I’m also joined today by Mackie McCrea and other members of the senior management team who are here to help answer your questions after our prepared remarks. Hopefully, you saw the press release we issued earlier this afternoon as well as the slides posted to our website. As a reminder, we will be making forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These statements are based upon our current beliefs as well as certain assumptions and information currently available to us and are discussed in more detail in our Form 10-Q for the full quarter ended March 31, 2024, which we expect to file tomorrow May 9.
I’ll also refer to adjusted EBITDA and distributable cash flow or DCF, both of which are non-GAAP financial measures. You’ll find a reconciliation of our non-GAAP financial measures on our website. I’ll start today by going over our financial results, for the first quarter of 2024, we generated adjusted EBITDA of $3.9 billion compared to $3.4 billion for the first quarter of 2023. We had record volumes through our crude pipelines and also saw strong performances across the rest of our operations. DCF, equivalent to the partners of Energy Transfer as adjusted, was $2.4 billion compared to $2 billion for the first quarter of last year. This resulted in excess cash flow after distributions of approximately $1.3 billion. On April 24, we announced a quarterly cash distribution of $0.3175 per common unit or $1.27 on an annualized basis.
This distribution represents an increase of 3.3% from the $0.3075 paid in the first quarter of 2023. In February, Fitch upgraded Energy Transfer’s Senior Unsecured Credit Rating to BBB with a stable outlook, which followed an upgrade by S&P to BBB in 2023. At the end of the first quarter, we had no outstanding borrowings under our revolving credit facility. Following the redemption of all of our outstanding Series Cs and Series Ds preferred units in February of 2024, in March we issued a notice to redeem all of Energy Transfer’s outstanding Series E preferred units on May 15, 2024. In April of 2024, we redeemed $1.7 billion of senior notes using cash on hand and proceeds from our revolving credit facility. And for the first quarter of 2024, we spent approximately $460 million on organic growth capital, primarily in the Midstream and NGL and Refined Product Segments, excluding SUN and USA Compression CAPEX.
Now turning to our results by segment for the first quarter, and we’ll start with NGL and Refined Products. Adjusted EBITDA was $989 million compared to $939 million for the first quarter of 2023. This was primarily due to growth across our transportation, fractionation, and terminal operations which was partially offset by lower gains from hedged NGL inventory. As a reminder, the first quarter of 2023 included gains that were carried over from the prior year. NGL transportation volumes increased 5% to 2.1 million barrels per day. This increase was primarily due to higher volumes from the Permian region on the Mariner East pipeline system and on the Gulf Coast export pipelines. NGL fractionation volumes increased 11% to 1.1 million barrels per day.
Total NGL export volumes grew 6% over the first quarter of 2023. We continue to see strong international demand for natural gas liquids and saw record LPG exports out of our Nederland Terminal for the month of March. During the first quarter of 2024, we loaded approximately 14 million barrels of ethane out of Nederland and nearly 7 million barrels of ethane out of Marcus Hook. During the first quarter, we continued to export approximately 20% of worldwide NGL exports. For Midstream, adjusted EBITDA was $696 million, compared to $641 million for the first quarter of 2023. This was primarily due to the addition of the Crestwood assets, as well as higher volumes in the Permian Basin. As a reminder, results in the first quarter of 2023 included a one-time positive adjustment of approximately $40 million.
Gathered gas volumes increased to 19.9 million MMBtus per day, compared to 19.8 million MMBtus per day for the same period last year. Now for our crude oil segment, adjusted EBITDA was $848 million, compared to $526 million for the first quarter of 2023. This was primarily due to significantly stronger pipeline volumes, increased terminal throughput, as well as favorable timing on gains associated with hedged inventory. We also benefited from the acquisition of the Lotus and Crestwood assets in May and November of 2023, respectively. Results for the first quarter of 2024 included a $40 million benefit related to favorable timing on gains associated with hedged inventory, a portion of which we expect to reverse in the second quarter. And as a reminder, the first quarter of 2023 did include one-time negative adjustments of approximately $35 million.
Crude oil transportation volumes increased 44% to a record 6.1 million barrels per day, compared to 4.2 million barrels per day for the same period last year. Excluding the additions of Crestwood and Lotus, adjusted EBITDA and crude oil transportation volumes on our base business increased 47% and 14% respectively, compared to the first quarter of 2023. In our interstate segment, adjusted EBITDA was $483 million compared to $536 million for the first quarter of 2023. During the quarter, we saw margin growth related to higher contracted volumes at increased rates on several of our pipelines. This growth was more than offset by lower operational sales resulting from lower prices and unplanned maintenance projects. In addition, the first quarter of 2023 included a one-time benefit from the realization of certain amounts related to a shipper bankruptcy.
Total system volumes increased 5% over the same period last year due to increased demand and higher utilization on the Transwestern, Tiger, Trunkline, and Gulf Run pipeline systems. We continue to fully utilize zone 1 capacity on Gulf Run and with the completion of the Trunkline backhaul project, we are fully utilizing deliveries into our Trunkline pipeline from zone 2. Our team continues to work on the next phase of a potential capacity expansion to facilitate the transportation of natural gas from northern Louisiana to the Gulf Coast based upon customer demand. And for our intrastate segment, adjusted EBITDA was $438 million compared to $409 million for the first quarter of last year. During the first quarter of 2024, we recorded gains of approximately $250 million related to pipeline optimization opportunities that were not expected to repeat throughout the remainder of the year.
In addition, we saw volume ramp-ups and new contracts on several of our Texas pipelines. All of this was partially offset by lower storage optimization opportunities. Turning to our growth projects, and we’ll start with Nederland and Marcus Hook export terminals. terminals. Our NGL terminals continue to benefit from increased demand both in United States as well as from international customers. Construction of the expansion to our NGL export capacity at Nederland continues to progress. This expansion is expected to give us the flexibility to load various products based upon customer demand. We have completed the installation of all pilings for the facility and the construction remains on schedule for an anticipated in-service in mid-2025 for the initial phases of the project.
And as mentioned on our last call, we are also building new refrigerated storage at Nederland which is expected to increase our butane storage capacity by 33% and double our propane storage capacity. This will further increase our ability to keep customers ships loaded on time and give us the ability to more than fully optimize our export capabilities. We expect the total combined cost of these two projects to be approximately $1.5 billion. At our Marcus Hook terminal, construction continues on the first phase of an optimization project that would add incremental ethane refrigeration and storage capacity. On our Lone Star NGL pipelines, we recently FID two projects that will de-bottleneck our West Texas Gateway and Lone Star Express pipelines.
On the Gateway pipeline, a de -bottlenecking project is underway that will allow us to fully utilize our interest on the EPIC pipeline and optimize our deliveries from the Delaware Basin into the Gateway pipeline for deliveries into Mont Belvieu. These upgrades are expected to be completed in 2025. As a reminder, this undivided interest was acquired as part of the Crestwood acquisition, and it’s just one of the several synergy projects we are working on. And on the Lone Star Express, we are completing upgrades that are expected to provide more than 90,000 barrels per day of incremental Permian NGL take-away capacity upon its anticipated in-service in 2026. The combined project costs are expected to be approximately $125 million. Upon completion of these two projects, our total deliverability into Mont Belvieu is expected to increase to more than 1.3 million barrels per day.
As we mentioned on our last call in early 2024, we closed on the acquisition of two pipelines, the Sabina 1 pipeline from Mont Belvieu to the Houston Ship Channel and the Sabina 2 pipeline from Mont Belvieu to our Nederland Terminal. We recently commenced the conversion of the Sabina 2 pipeline to provide additional natural gasoline service between our Mont Belvieu NGL complex and our Nederland and Storage and Export Terminal. This project, which we anticipate will be in service in 2025, is expected to increase the capacity from 25,000 barrels per day to approximately 70,000 barrels per day. In addition, discussions are ongoing to provide transportation for potentially multiple products on the Sabina 1 pipeline that extends from Mont Belvieu to the Houston Ship Channel As a reminder, in addition to the incremental processing capacity acquired through the Crestwood acquisition, we are expanding our processing capacity at several of our existing processing plants.
In total, we are moving forward with upgrades to add approximately 200 million cubic feet per day of processing capacity in West Texas. In addition, we recently completed upgrades in South Texas that added approximately 60 million cubic feet per day. These upgrades can be completed at more favorable capital cost when compared to building a new processing plant. Also, we continue to increase optionality and improve reliability along our pipeline systems. At the end of 2023, we completed a backhaul project on our Trunkline pipeline. The project added an incremental 400,000 Mcf per day of southern flow capacity on the pipeline system at very efficient capital cost. Looking at our crude oil assets, we are adding a direct connection from Midland to our pipeline that flows from the Permian Basin to Cushing.
The construction of this approximately 30 mile pipeline continues, and upon its anticipated completion in the fourth quarter of this year, it is expected to be able to transport approximately 100,000 barrels per day of crude from our terminals in Midland, Texas to our terminal in Cushing, Oklahoma. We also continue to develop our proposed Blue Marlin Offshore project, and we are hoping to receive the draft EIS this quarter. As a reminder, in November of 2023, we announced a Heads of Agreement, or HOA, with TotalEnergies for crude offtake. And additional customers remain very engaged and interested in our project, recognizing the value of fully loading VLCCs and the reduced execution risk that comes with repurposing existing underutilized assets.
Now for an update on Lake Charles LNG project. As we discussed on our last earnings call in January of this year, the Biden administration imposed a moratorium on the approval of LNG exports, while the Department of Energy conducts studies to determine whether LNG exports are in the public interest. The Biden administration stated that these studies would focus on the cumulative impact of LNG exports on climate change. U.S. natural gas prices and the impact of LNG facilities on local communities. We remain optimistic that the DOE studies will continue to support DOE export authorizations, particularly for LNG projects that have lower Scope 1 and Scope 2 emissions profiles, like Lake Charles. And so we continue to believe that Lake Charles LNG will receive a DOE export authorization in due course.
As such, Lake Charles LNG continues to pursue the development of the project. In this regard, Lake Charles LNG is in discussions with LNG offtake customers for the remaining unsold off-take volumes necessary to take FID. Lake Charles LNG remains extremely thankful for the continued support of its existing LNG customers. And for a brief update on other projects, Energy Transfer has approved eight 10-megawatt natural gas-fired electric generation facilities to support the Partnership’s operations in Texas. We expect these facilities to go into service throughout 2025 and 2026. On the blue ammonia front, we continue to develop an ammonia hub concept at Lake Charles Louisiana and Nederland, Texas, where we have deep water access at our existing facilities.
This hub concept would allow us to provide critical infrastructure services to several blue ammonia facilities, including natural gas supply, CO2 transportation to third-party sequestration sites, ammonia storage, and deep water marine loading facilities. This hub concept is expected to promote economies of scale and efficiencies as compared to individual standalone blue ammonia projects, and the market response to this approach has been favorable. Yesterday, we entered into an agreement with CapturePoint that commits CO2 from our treating facilities in northern Louisiana to the capture and sequestration project being jointly developed by CapturePoint and Energy Transfer. Now, looking ahead at our 2024 organic growth capital guidance. With the addition of several new growth projects, we now expect 2024 growth capital expenditures to be approximately $2.9 billion, which will be spent primarily in the NGL and refined products and midstream segments.
This has been revised from our previous guidance for approximately $2.5 billion to include newly approved deep bottlenecking projects on our Lone Star Express and Gateway NGL pipelines, the Sabina 2 pipe conversion, optimization work at Mont Belvieu, backhaul, looping and compression projects on FGT, new power generation facilities, as well as additional processing plant optimization in the Permian, and gathering system buildouts and compression projects in the midstream segment. We continue to expect our long-term annual growth capital run rate to be approximately $2 billion to $3 billion. Now turning to our adjusted EBITDA guidance, we are raising our 2024 adjusted EBITDA guidance to be between $15 billion to $15.3 billion, compared to our prior guidance range of $14.5 billion to $14.8 billion.
Our 2024 guidance has been updated to include earnings related to Sunoco’s acquisition of the NuStar assets, which closed May 3rd. As we look at our first quarter performance and bring the NuStar assets into the family, we continue to be excited about 2024 and are comfortable that we can deliver on our plan despite various market headwinds like lower gas prices and production curtailments that have impacted midstream volumes. Overall, worldwide demand for crude oil, natural gas, natural gas liquids, and refined products remain strong, as does demand for our products and services. We will continue to position ourselves to meet this demand by strategically targeting optimization and expansion projects that enhance our existing asset base and generate attractive returns.
We also continue to pursue synergy opportunities around recently acquired assets with several projects underway, including the optimization of processing capacity in West Texas and NGL pipeline takeaway capacity from the Delaware Basin. Our financial position continues to be stronger than any time in Energy Transfer’s history, which we believe will provide us with the continued flexibility to balance pursuing new growth opportunities, further leverage reduction, maintaining our targeted distribution growth rate, and increasing equity returns to our unit holders. That concludes our prepared remarks, operator. Please open the line up for the first question.
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