What’s the Opportunity at Energy Transfer Partners LP (ETP)?

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The best part about many of ETP’s new projects is that they supported by fee-based contracts, meaning there is little to no exposure to commodity price risks, creating reliable income streams that lend themselves well to increasing distribution payments.

The other important diversification component that is represented in the Sunoco acquisition is that the buyout expands Energy Transfer’s range geographically, as most of Sunoco’s pipelines and terminals are located in the Northeast U.S.

Sunoco Logistics pipelines stretch down from New York, across Pennsylvania and Ohio, into Michigan, and ultimately run down to Oklahoma and Texas, giving ETP incredible access to the Marcellus and Utica Shales. The Marcellus Shale is a particularly intriguing play right now. Natural gas and natural gas liquids production in the shale is booming, despite low gas prices, and energy analysts expect output from the Marcellus to climb 78% over the next two to three years.

Another crucial pickup for Energy Transfer Partners LP (NYSE:ETP) was its acquisition of a 50% stake in the Citrus pipeline system, which runs from Texas along the Gulf Coast and down into Florida. Florida is a quiet yet significant player in the world of natural gas. Second only to Texas, the state generates at least 62% of its electricity from natural gas, and that number will increase as coal and fuel oil power plants continue to be replaced by natural-gas-powered facilities. ETP’s pickup is a smart foray into one of the most crucial gas markets in the U.S.

All of this growth will mean increased opportunities for additional distributable cash flow for Energy Transfer. For example, ETP expects the Sunoco acquisition to bring in 33% of future cash flow. In the first quarter of 2013, ETP’s stake in Sunoco Logistics combined with Sunoco’s retail business to contribute adjusted EBITDA of $273 million.

The article What’s the Opportunity at Energy Transfer Partners? originally appeared on Fool.com and is written by Aimee Duffy.

Fool contributor Aimee Duffy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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