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Energy Transfer Says Williams Merger on Track to Close in 2Q, But Investors Have Doubts

Announcing its 4Q2015 results during a conference call Thursday, management for Energy Transfer Partners LP (ETP) and Energy Transfer Equity LP (ETE) said ETE’s announced merger with The Williams Companies (see Daily GPI, Sept. 28, 2015) is expected to close during the second quarter, pending customary closing conditions.

Meanwhile, news reports surfaced after Thursday’s conference call that ETE might be getting cold feet on its planned takeover, which fed investor concerns and drove down stock prices for the companies connected to the transaction.

During a brief update on the Williams merger Thursday, ETP CFO Thomas Long noted that the deal is still subject to the approval of Williams’s stockholders.

“As a reminder, we have a commitment for a $6.05 billion bridge loan in place with a syndicate of banks to fund the cash portion of the merger. This is effectively a two-year loan,” Long said. “We have had extensive discussions with the rating agencies, and we are evaluating several alternative financing plans internally. We will provide more details on this at the appropriate time.”

Management declined to field questions regarding the Williams merger during Thursday’s conference call.

Earlier this month, ETE swapped CFOs, replacing previous CFO Jamie Welch with Long, prompting analysts to raise questions over the feasibility of the Williams merger (see Daily GPI, Feb. 8). In a Securities and Exchange Commission filing at the time, ETE said that it “affirms that the replacement of Mr. Welch as chief financial officer of the partnership was not based on any disagreement with respect to any accounting or financial matter involving the partnership or any of its affiliates.”

When asked about the CFO change Thursday, CEO Kelcy Warren said only that “to be respectful to Jamie, I’ll keep this to a minimum, and we talked to many, many that are on this call. Jamie is a very talented guy, but the decision was made by me that we needed to make a move, and we did. And Tom Long is now our CFO.”

ETP’s stock price closed Thursday’s trading at $27.14, down almost 9% from the previous day’s close of $29.72. ETE’s shares were trading at $6.80 at close Thursday, down 5% from $7.17 at the previous day’s close. WMB’s stock price was down more than 3% Thursday, closing at $16.03, while shares of Williams Partners LP (WPZ) ended trading at $19.36, down almost 5% from the previous day’s close of $20.35.

Also during Thursday’s call, Long remarked on the recent completion of FERC’s draft environmental impact statement (EIS) for the ET Rover Pipeline Project (see Daily GPI, Feb. 19). Long said ETP currently expects Rover to receive its certificate at the beginning of 4Q2016 and to begin “service to the Midwest hub near Defiance, OH, by June 2017 and to market to Michigan and Union Gas Dawn Hub by November of 2017.

For its midstream segment, ETP reported 10,051,612 MMBtu/d in gathered natural gas volumes, 443,741 b/d in NGLs produced and 29,437 b/d of equity NGLs produced for 4Q2015, compared with 9,531,307 MMBtu/d, 376,724 b/d and 30,656 b/d, respectively, in the year-ago quarter. The partnership attributed the increase in gathered volumes to ETP’s acquisition of the King Ranch system in South Texas, along with increased gathering and processing capacities in the Eagle Ford Shale, the Permian Basin and Cotton Valley regions.

Its liquids transportation and services segment handled 473,656 b/d in transported volumes in the quarter, along with 249,566 b/d in NGL fractionation volumes, compared with 393,743 b/d and 204,565 b/d in 4Q2014. Volume increases were driven by production increases in the Eagle Ford, Permian and Southeast Texas producing regions, offset by decreases from North Texas, according to ETP.

Long attributed the year/year increase in fractionated NGL volumes to the startup of ETP’s second fractionator at its Mont Belvieu facility.

Intrastate transportation and storage volumes decreased year/year to 7,926,907 MMBtu/d compared with 8,485,823 MMBtu/d in 4Q2014. ETP attributed the decrease primarily to lower production volume in the Barnett Shale. But CFO Thomas Long added that ETP expects “this trend to reverse due to volume growth in 2016 related to increased demand from Mexico and the Gulf Coast LNG [liquefied natural gas] facilities.”

ETP’s interstate transportation and storage segment transported an average 5,739,157 MMBtu/d in natural gas volumes for the quarter, down from 6,125,616 MMBtu/d in the year-ago quarter. ETP attributed the drop to “a managed contract roll-off to facilitate the transfer of one of the pipelines that was taken out of service in advance of being repurposed from natural gas service to crude oil service. The decrease was partially offset by increased deliveries on the Transwestern pipeline due to sustained cooling demand in the Phoenix market and increased customer demand in New Mexico.”

ETP currently plans $7.08-7.53 billion in capital expenditures (capex) in 2016, with growth capex focused primarily on its midstream ($1.2-1.25 billion) and liquids transportation and services ($2.43-2.53 billion) segments. ETP also reported plans for $2.6-2.8 billion in indirect growth investments for affiliate Sunoco Logistics Partners LP in 2016.

ETP finished 2015 with $8.17 billion in total capex, with $7.68 billion going to growth capex and $485 million going to maintenance. The majority of ETP’s 2015 capex focused on its midstream and liquids transportation and services segments, each receiving roughly $2.1 billion in growth investments.

Distributable cash flow (DCF) attributable to ETP’s partners for 4Q2015 fell to $1.19/share from $1.68/share in the year-ago quarter.

ETP’s full-year 2015 DCF totaled $4.62/share, down from $7.56/share for full-year 2014.

For the quarter, ETP reported a net loss of $327 million (minus 68 cents/unit), compared with a net loss of $90 million (minus 27 cents/unit) in the year-ago quarter.

ETP reported a full-year net loss of $18 million (minus 9 cents/unit), compared with a net income of $606 million ($1.58/unit) for full-year 2014.

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