A Closer Look at Energy Transfer Partners LP (ETP)’s Earnings

Energy Transfer Partners LP (NYSE:ETP) reported earnings on Wednesday and soundly beat analyst expectations on both earnings per unit and revenue. The partnership posted its best quarter in quite some time, so let’s take a closer look.

The general rundown
Energy Transfer reported earnings of $0.62 per unit, and revenue of $10.98 billion. EBITDA came in at $948 million, more than double the $455 million it reported a year ago. For the full year, ETP recorded EBITDA of $2.74 billion, a $963 million increase. Let’s drop down to the segment level to see what is driving this strong performance.

Q4: Digging deeper
On the upside, EBITDA for ETP’s Interstate Transportation & Storage segment basically tripled year over year and drove much of the partnership’s overall success in the fourth quarter. The $200 million increase, bringing adjusted earnings to $306 million, was driven by the consolidation of Southern Union’s assets and increased revenues from the Tiger and Citrus systems.

NGL Transportation and services increased from $48 million in 2011 to $54 million in 2012. NGL volumes increased about 43% over last year, largely attributed to growing production in the Eagle Ford shale. This segment should continue to improve as volumes grow on the Lone Star West Texas Gateway NGL pipeline, which was only put into service at the tail end of 2012. Management expects volumes on that line to hit 150,000 bpd by June.

And of course, Energy Transfer’s stake in Sunoco Logistics Partners L.P. (NYSE:SXL), as well as its possession of Sunoco’s retail business, contributed income that did not exist in 2011. The two combined for a $328 million boost in the fourth quarter. Sunoco Logistics generated record results, and contributed $219 million to ETP. This story will also continue to improve, as the MLP has boosted its distribution to $2.18 annualized.

On the downside, Intrastate Transportation & Storage continues to be a thorn in the side of the partnership. EBITDA dropped from $153 million in 2011, to $131 million last quarter. We saw this coming, and indeed lower transported volumes stung ETP again in the fourth quarter. On a positive note, despite a decrease in transportation fees, margins on sales of natural gas and storage both increased.

Finally, ETP’s midstream segment declined $12 million year over year, to land at $103 million for the fourth quarter. Management attributes the loss to increased expenses surrounding the consolidation of Southern Union’s gathering and processing assets. The good news from this segment is that fee-based margins increased $31 million, and should continue to increase in the near future as new projects come online.