Last year, Energy Transfer Partners LP (NYSE:ETP) missed out on the tremendous gains that its industry peers experienced. The partnership’s structure was clunky, natural gas prices were killing its bottom line, and it didn’t look like a distribution increase was anywhere in sight. How quickly the tide has turned.
Following is an excerpt from the report, laying out the company’s opportunity. We hope you enjoy it.
The Opportunity
Over the course of the last three years, Energy Transfer Partners LP (NYSE:ETP) made several major acquisitions and launched more than $3 billion worth of organic growth projects. The result of that push is that the ETP we see today barely resembles the ETP we knew back then. In the early going, these acquisitions were just strapped to the back of the partnership as it plowed forward into the next big buy. Now, management has started to reorganize its structure in an effort to simplify operations and increase transparency, which in turn makes it easier for investors to focus on the opportunities that these moves provided in the first place.
The sheer volume of the acquisitions and the organic growth projects does two things for the partnership. First, it increases the diversity of ETP’s business mix. Second, it almost guarantees the likelihood of additional distributable cash flow.
For example, last year’s acquisition of Sunoco gives ETP (once strictly a natural gas midstream company) access to the crude oil, refined products, and natural gas liquids markets. Between Sunoco and its associated master limited partnership, Sunoco Logistics Partners, Energy Transfer Partners LP (NYSE:ETP) now operates 5,400 miles of crude oil pipeline and 2,500 miles of refined products pipeline. Energy Transfer also picked up 40 miles of natural gas liquids pipeline, and one natural gas liquids storage facility in the deal. As a reminder, ETP owns Sunoco, but it does not own Sunoco Logistics; rather it controls a 2% general partner stake, 32.4% of its limited partner units, and all of the incentive distribution rights.
In 2009, 52% of Energy Transfer Partners LP (NYSE:ETP)’s business was dedicated to intrastate natural gas pipelines. Today, that number is down to 17 %, and the overall makeup of the business is far more diversified than it was even two short years ago. In this way, ETP mitigates any disadvantages that affect one specific revenue stream, while opening the door for more opportunistic growth across the various niches of the midstream industry. As Energy Transfer’s business mix continues to diversify, its cash flows will do the same. Right now, roughly 70% of Energy Transfer Partners LP (NYSE:ETP)’s cash flows are derived from some aspect of its natural gas — intrastate and interstate — and natural gas liquids business, and 30% is derived from crude oil and petroleum products.
