01—Abstract
Summary
Summary of the 10-K filed February 21, 2020. Cited figures are marked; the original filing is the authoritative source.
Energy Transfer LP (ET) reported 2019 results that reflect a year of heavy acquisition activity and organic growth.
Consolidated Adjusted EBITDA rose about $1.7 billiona (18%) to roughly $11.2 billion in total segment Adjusted EBITDA, driven by new assets such as Mariner East 2, Permian crude and NGL throughput, the Bakken pipeline, Rover, and the USAC and SemGroup acquisitions. Consolidated revenue was $54.2 billion, operating income $7.3 billion, and net income $4.9 billion, up from $3.4 billion in 2018, while cash from operations was $8.0 billion. Balance sheet leverage increased.
Total consolidated debt reached about $51.1 billionb (long-term debt $51.0 billion), up from $46.0 billion, and the Partnership's ETO credit facility leverage ratio was 4.04x against a 5.0x covenant. Distributable cash flow coverage is a key watch item: the Parent Company paid $1.22 per unit in 2019, and management targets a minimum 1.50x distribution coverage ratio. Capital spending was $5.3 billion in 2019, with 2020 growth capex guided at roughly $3.9 to $4.1 billion for ETO, led by NGL/refined products and midstream projects.
Investors should weigh several risks: the Parent Company's cash flow depends entirely on distributions from ETO, which in turn depends on subsidiaries including Sunoco LP and USAC; the Williams litigation (a $410 millionc termination fee claim, trial set for June 2020); the Pennsylvania Revolution pipeline penalty of $28.6 million and related investigations; Mariner East-related criminal inquiries and securities suits; and a sizable environmental accrual of $320 million. The LCL liquefaction project remains contingent on long-term offtake contracts and regulatory approvals.
02—Key points
Key Highlights
- Revenue of $54.2 billion and net income of $4.9 billion for 2019, up from $54.1 billion and $3.4 billion in 2018 (income from continuing operations grew 35%).
- Segment Adjusted EBITDA reached $11.2 billion, up 18% year over year, led by NGL/refined products (+$687 million) and crude oil transportation (+$642 million), with new Mariner East 2 volumes and Permian throughput as key drivers.
- Total consolidated debt of about $51.1 billion, up roughly $5 billion, including $2.0 billion of new ETO term loan borrowings and $7.97 billion of floating-rate debt exposed to rate changes.
- Distribution to common unitholders held flat at $1.22 per unit for 2019 ($0.305 per quarter), with management targeting a minimum 1.50x coverage ratio; the Partnership's leverage ratio at ETO was 4.04x versus a 5.0x covenant.
- Acquired SemGroup on December 5, 2019 for about $1.6 billion in total consideration, adding roughly $6.1 billion of assets, Canadian operations, and Houston and Cushing crude terminals.
- Major legal and regulatory exposure: $28.6 million Revolution pipeline civil penalty, the Williams $410 million termination fee claim (trial June 2020), MTBE product-liability suits, and Mariner East-related criminal and securities litigation.
- Growth pipeline includes Lake Charles LNG liquefaction (16.45 million tonnes per annum, commercial bids due Q2 2020), the Ted Collins crude line (in service 2021), and the Lone Star Express expansion (Q4 2020).
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Energy Transfer LP kept $0.06.
- Revenue$54.21B100.0%
- Cost of revenue−$39.80B73.4%
- Gross profit$14.41B26.6%
- Operating costs−$7.21B13.3%
- Operating income$7.20B13.3%
- Interest, other & tax−$3.69B6.8%
- Net income$3.52B6.5%
Where FY2019 revenue went
$54.21B- Cost of revenue: $39.80B, 73% of revenue
- Other operating costs: $6.51B, 12% of revenue
- Net income: $3.52B, 6.5% of revenue
- SG&A: $694.0M, 1.3% of revenue
- Interest, other & tax: $3.69B, 6.8% of revenue
Kept 6.5% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 21, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $54.21B$54.09B | +0.2% |
| Cost of Revenue | $39.80B$41.60B | −4.3% |
| Gross Profit | $14.41B$12.48B | +15.4% |
| SG&A Expenses | $694.00M$702.00M | −1.1% |
| Operating Expenses | $47.01B$48.68B | −3.4% |
| Operating Income | $7.20B$5.40B | +33.3% |
| Interest Expense | $2.33B$2.06B | +13.4% |
| Net Income | $3.52B$1.75B | +101.1% |
05—Questions
Frequently Asked Questions
How does the Parent Company's cash flow relate to ETO's performance?
Energy Transfer LP has essentially no operating assets of its own. Substantially all of its cash flow comes from distributions on its ownership of ETO (the general partner and roughly 2.45 billion ETO common units), so unitholder distributions depend on ETO's subsidiaries, including Sunoco LP and USAC, continuing to generate and pay out cash.
Is the $1.22 annual distribution at risk?
The filing does not guarantee future distributions. Management intends to keep a 1.50x coverage ratio, and it retains discretion to set reserves that reduce cash available for distribution. Rising debt, Williams litigation exposure, and environmental or regulatory penalties could pressure coverage, so investors should monitor distributable cash flow against the payout.
What drove the 2019 earnings improvement?
The biggest contributors were new assets placed in service and acquisitions, including Mariner East 2 (about $265 million of transportation margin), Permian crude and NGL throughput, the Bakken pipeline, the Rover pipeline, and the USAC consolidation. Some segments offset gains, notably lower midstream non-fee margin from weaker NGL and gas prices.
What are the biggest legal and regulatory risks disclosed?
Key items include the Williams lawsuit seeking a $410 million termination fee (trial June 2020), the $28.6 million Pennsylvania Revolution pipeline penalty plus Pennsylvania Attorney General and federal grand jury investigations, Mariner East criminal investigations in Chester and Delaware counties, MTBE groundwater suits against Sunoco, and FERC scrutiny of MLP income tax allowances. Environmental accruals total $320 million.
What is the outlook for the Lake Charles LNG project?
The liquefaction project is still in development. It depends on securing long-term LNG offtake contracts, favorable project economics, and continued regulatory approvals, and the DOE and FERC authorizations carry conditions. Final commercial bids were expected in Q2 2020, and FERC completion deadlines were extended to December 2025.
06—Continue