Morningstar | Energy Transfer completes its combination, simplifying its investment story
In the past decade, Energy Transfer has built itself into one of the largest midstream energy companies with an enviable network of natural gas infrastructure, primarily in Texas and the U.S. midcontinent region.Its buildout was both a result of and contributor to the shale gas boom as Energy Transfer's pipeline system helped deliver cheap gas to demand centers. When energy prices collapsed in 2008, Energy Transfer diversified beyond long-haul transmission. That move brought significant exposure to crude and liquids markets, as well as downstream operations.Among the most notable addition during the last half-decade is its oil pipeline investments and its investment in Sunoco's natural gas liquids marketing business. The company now touches nine of the top 10 U.S. oil- and gas-producing basins, giving it access to a huge customer base.Energy Transfer's diversification strategy continued in 2017 with its merger with Sunoco Logistics, acquisition of all outstanding units of PennTex, and continued investment in projects like the Bakken and Rover pipelines. As these projects go into service, we expect Energy Transfer's cash flow to grow, leverage to ease, and distribution growth to accelerate. We see 10% distribution growth in the new consolidated structure in 2019 and beyond as projects go into service in 2018-19.Energy Transfer finally eliminated the lingering concerns about its convoluted corporate structure with its combination in October 2018. Energy Transfer remains a limited partnership, but it no longer has two entities headed in different directions. Energy Transfer Partners faced a high debt burden and risk of cutting its distribution to fund Energy Transfer Equity's incentive distribution rights. The combination eliminates those concerns and allows the company to pursue growth investments.We think Energy Transfer is better positioned to go into the multi-billion-dollar Lake Charles LNG export facility project as one entity.Energy Transfer is a holding company. Through its subsidiaries, the company is engaged in natural gas operations, including natural gas midstream and intrastate transportation and storage and interstate natural gas transportation and storage, and crude oil, natural gas liquid (NGL) and refined products transportation, terminalling services and acquisition and marketing activities. In addition, the company owns investments in other businesses. The company's segments include: intrastate transportation and storage; interstate transportation and storage; midstream; NGL and refined products transportation and services; crude oil transportation and services; investment in Sunoco LP; investment in USAC; and all other.
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