10-QPeriod: Q3 FY2007

Energy Transfer LP Quarterly Report for Q3 Ended Nov 30, 2007

Filed January 9, 2008For Securities:ETET-PI

Summary

Energy Transfer Equity, L.P. (ETE) reported increased revenues and operating income for the three months ended November 30, 2007, compared to the same period in the prior year. This growth was driven by strong performance in its midstream and intrastate transportation and storage segments. The company also saw significant capital expenditures, including a major acquisition (Canyon Gathering System) and investments in internal growth projects, reflecting an expansionary strategy. However, investors should be aware of significant ongoing legal and regulatory challenges. ETE and its subsidiary ETP are facing allegations from the FERC and CFTC regarding market manipulation and improper trading activities, which could result in substantial penalties, disgorgement of profits, and potential revocation of marketing authority. The company is also involved in several other legal proceedings and contingent liabilities. While management expresses confidence in its legal defenses and compliance with regulations, these matters represent a material risk to the company's financial performance and liquidity.

Key Highlights

  • 1Revenues increased by 23.8% to $1.63 billion for the three months ended November 30, 2007, compared to $1.39 billion in the prior year period.
  • 2Operating income more than doubled, rising 110.8% to $217.3 million from $103.1 million in the same period.
  • 3Significant capital expenditures were made, including $336.7 million for acquisitions (Canyon Gathering System) and $501.3 million for capital expenditures.
  • 4Total assets grew to $9.19 billion from $8.18 billion, indicating expansion.
  • 5Long-term debt increased to $5.69 billion from $5.20 billion, reflecting financing for growth and acquisitions.
  • 6The company is facing significant legal and regulatory challenges related to alleged market manipulation by FERC and CFTC, with potential for substantial penalties.
  • 7Net income attributable to limited partners increased to $51.3 million, or $0.23 per unit, from $30.9 million, or $0.20 per unit.

Frequently Asked Questions

Revenue growth was primarily driven by strong performance in the midstream and intrastate transportation and storage segments. The midstream segment benefited from increased natural gas and NGL sales volumes, partly due to the completion and expansion of the Godley processing plant and the acquisition of the Canyon Gathering System. The intrastate segment saw higher transported natural gas volumes due to increased demand and new shipper contracts, along with increased fee-based storage revenue from a new CenterPoint contract.

The most significant risks include ongoing legal and regulatory investigations by the FERC and CFTC concerning alleged market manipulation and improper trading activities. These could lead to substantial financial penalties, disgorgement of profits, and potential revocation of marketing authority. The company also faces other litigation and contingent liabilities that could materially impact its financial results, cash available for distribution, and liquidity.

Growth and acquisitions were financed through a combination of debt and equity. The company utilized borrowings under its credit facilities, including a new $310 million ETP Term Loan Facility for the Canyon acquisition. Significant capital expenditures were also funded, contributing to an increase in long-term debt and reflecting an active financing strategy to support expansion.

The FERC is seeking $70.1 million in disgorgement and $97.5 million in civil penalties, while the CFTC is seeking civil penalties. The company is contesting these allegations vigorously. The outcome is uncertain, but it is possible that the amount payable could exceed existing accruals and materially impact the company's results of operations, cash available for distribution, and liquidity.