Is Energy Transfer's distribution safe, and how well is it covered?

The quarterly distribution of $0.3150 per unit was increased 3.3%. For Q4 2023, Distributable Cash Flow attributable to partners, as adjusted, was $2.03 billion, against limited partner distributions of roughly $1.06 billion for the quarter, which indicates solid coverage. Coverage should still be monitored given the $627 million litigation charge in 2023, rising maintenance capex, and the preferred unit redemptions planned for 2024.

What is driving the expected growth in 2024 Adjusted EBITDA?

The filing points to a full year of contributions from the Crestwood merger, with expected cost synergies of $65 million in 2024 and $80 million annually by 2026, plus continued growth in NGL fractionation and transportation volumes, crude oil volumes, and the Blue Marlin project. Growth capex of $2.4 billion to $2.6 billion in 2024 also supports future earnings, though the filing does not quantify each driver.

How exposed is Energy Transfer to commodity price swings?

Management states that the vast majority of segment margins are fee-based and therefore have limited commodity price sensitivity. However, the intrastate transportation and storage segment saw Q4 Adjusted EBITDA fall about 44% on lower natural gas prices and reduced pipeline optimization, and the midstream segment was affected by lower natural gas and NGL prices. Investors should expect some sensitivity in those areas.

How is the balance sheet positioned after the Crestwood acquisition and recent debt activity?

Total assets rose to $113.7 billion and long-term debt to $51.4 billion at year-end 2023. Goodwill increased to $4.0 billion, largely from the Crestwood deal. The revolving credit facility had $3.56 billion available. In January 2024 the partnership issued $3.8 billion of senior notes and $800 million of junior subordinated notes to refinance debt and redeem preferred units, and it plans to redeem its Series E preferred units in May 2024.

Does the filing contain any one-time items that affect comparability?

Yes. Full-year 2023 included a $627 million non-operating litigation loss, which reduced net income. Q4 2023 included a $13 million one-time regulatory expense in the NGL segment and higher M&A-related costs in the all-other segment. Sunoco LP inventory valuation adjustments of $227 million in Q4 also affect reported figures, and Adjusted EBITDA excludes many of these items by definition.

ET/ET-PI 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 14, 2024. Cited figures are marked; the original filing is the authoritative source.

Energy Transfer LP (ET) reported fourth-quarter and full-year 2023 results on February 14, 2024, with Q4 net income attributable to partners of $1.33 billion^a (up $172 million year over year), Q4 Adjusted EBITDA of $3.60 billion (up $165 million), and Q4 Distributable Cash Flow attributable to partners, as adjusted, of $2.03 billion (up from $1.91 billion).

Full-year 2023 Adjusted EBITDA was $13.7 billion^b. The most material forward-looking item is the 2024 outlook: Adjusted EBITDA guidance of $14.5 billion to $14.8 billion, implying about 7% growth at the midpoint, and growth capex of $2.4 billion to $2.6 billion plus maintenance capex of $835 million to $865 million. Results were supported by record NGL fractionation and transportation volumes, strong crude oil volume growth, and contributions from the Crestwood merger, which closed in November 2023.

Investors should also note full-year 2023 net income was pressured by a $627 million^c non-operating litigation loss, and that segment performance was mixed: intrastate transportation and storage Adjusted EBITDA fell sharply, from $433 million to $242 million, on lower natural gas prices and reduced pipeline optimization. Balance sheet activity was active. Total assets rose to $113.7 billion, long-term debt to $51.4 billion, and goodwill to $4.0 billion, largely from the Crestwood acquisition.

In January 2024 the partnership issued $3.8 billion^d of notes and $800 million of junior subordinated notes to refinance debt and redeem preferred units. The quarterly distribution was raised to $0.3150 per common unit, a 3.3% increase. Management states that no single segment contributed more than one-third of Adjusted EBITDA, and that most segment margins are fee-based.

The filing is a furnished (not filed) 8-K under Item 2.02, and the financial data is unaudited. The reported figures are non-GAAP measures, and their definitions and reconciliations should be reviewed alongside GAAP results.

02—Key points

Key Highlights

Q4 2023 net income attributable to partners rose to $1.33 billion, up $172 million year over year; basic net income per common unit was $0.37.
Q4 2023 Adjusted EBITDA reached $3.60 billion, up $165 million (about 4.8%) from $3.44 billion a year earlier.
Full-year 2023 Adjusted EBITDA was $13.7 billion, $100 million above the high end of prior company estimates.
2024 guidance calls for Adjusted EBITDA of $14.5 billion to $14.8 billion, implying roughly 7% growth at the midpoint.
Q4 2023 Distributable Cash Flow attributable to partners, as adjusted, was $2.03 billion, up from $1.91 billion; growth capex was $1.59 billion in 2023 and maintenance capex was $762 million.
Quarterly distribution raised to $0.3150 per common unit ($1.26 annualized), a 3.3% increase over Q4 2022.
Full-year 2023 net income was reduced by a $627 million non-operating litigation loss, and intrastate transportation and storage Adjusted EBITDA fell from $433 million to $242 million in Q4.

03—Questions

Frequently Asked Questions

Is Energy Transfer's distribution safe, and how well is it covered?
The quarterly distribution of $0.3150 per unit was increased 3.3%. For Q4 2023, Distributable Cash Flow attributable to partners, as adjusted, was $2.03 billion, against limited partner distributions of roughly $1.06 billion for the quarter, which indicates solid coverage. Coverage should still be monitored given the $627 million litigation charge in 2023, rising maintenance capex, and the preferred unit redemptions planned for 2024.
What is driving the expected growth in 2024 Adjusted EBITDA?
The filing points to a full year of contributions from the Crestwood merger, with expected cost synergies of $65 million in 2024 and $80 million annually by 2026, plus continued growth in NGL fractionation and transportation volumes, crude oil volumes, and the Blue Marlin project. Growth capex of $2.4 billion to $2.6 billion in 2024 also supports future earnings, though the filing does not quantify each driver.
How exposed is Energy Transfer to commodity price swings?
Management states that the vast majority of segment margins are fee-based and therefore have limited commodity price sensitivity. However, the intrastate transportation and storage segment saw Q4 Adjusted EBITDA fall about 44% on lower natural gas prices and reduced pipeline optimization, and the midstream segment was affected by lower natural gas and NGL prices. Investors should expect some sensitivity in those areas.
How is the balance sheet positioned after the Crestwood acquisition and recent debt activity?
Total assets rose to $113.7 billion and long-term debt to $51.4 billion at year-end 2023. Goodwill increased to $4.0 billion, largely from the Crestwood deal. The revolving credit facility had $3.56 billion available. In January 2024 the partnership issued $3.8 billion of senior notes and $800 million of junior subordinated notes to refinance debt and redeem preferred units, and it plans to redeem its Series E preferred units in May 2024.
Does the filing contain any one-time items that affect comparability?
Yes. Full-year 2023 included a $627 million non-operating litigation loss, which reduced net income. Q4 2023 included a $13 million one-time regulatory expense in the NGL segment and higher M&A-related costs in the all-other segment. Sunoco LP inventory valuation adjustments of $227 million in Q4 also affect reported figures, and Adjusted EBITDA excludes many of these items by definition.

04—Continue

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