Morningstar | Energy Transfer's Simplification Highlights Near-Term Growth Potential
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 build-out was both a result of and contributor to the shale oil and 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. This move brought significant exposure to crude and liquids markets, as well as downstream operations.Among the most notable addition during the last five years is its oil pipeline investments and also its investment in Sunoco's natural gas liquids marketing business. Crude and NGL operations are now set to generate more earnings than its legacy gas business. The company now touches nine of the top 10 U.S. oil- and gas-producing basins, giving it access to a large 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 such as the Bakken and Rover pipelines.As the company's latest completed projects go into service, we expect Energy Transfer's cash flow to grow, leverage to ease, and distribution growth to accelerate. We see the potential for 6% distribution increases in future, based on earnings growth from projects that went into service during 2018-19.Energy Transfer finally eliminated lingering concerns about its convoluted corporate structure after combining its two partnerships 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 a 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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