Strong demand for takeaway routes from the Permian Basin and the Bakken Shale helped Energy Transfer LP deliver strong volume growth in the fourth quarter in both its liquids and natural gas businesses.
However, during a conference call to discuss 4Q2018 results, management for the Dallas-based midstreamer also acknowledged “mistakes” associated with the regulatory setbacks it has encountered in Pennsylvania, where high profile incidents have hampered progress on its Revolution natural gas system and the Mariner East (ME) 2 and 2X natural gas liquids (NGL) projects.
Energy Transfer reported healthy growth across its major business segments in 4Q2018, including a substantial year/year increase in natural gas volumes on the interstate systems. The higher throughput volumes helped propel revenues to $13.57 billion for the fourth quarter, up from 4Q2017 revenues totaling $11.45 billion. Full-year 2018 revenues totaled $54.09 billion from $40.52 billion for full-year 2017.
Energy Transfer experienced strong growth in liquids during the quarter, with crude volumes increasing amid higher production in the West Texas portion of the Permian and growth from its Bakken Pipeline. Crude oil transportation volumes were 4.3 million b/d, from around 3.9 million b/d in 4Q2017. Crude terminal volumes reached 2.2 million b/d from a little more than 2 million b/d a year ago.
“Contributions from the Bakken crude oil pipeline, Rover and other growth projects were big components” of the financial performance in 4Q2018, CFO Thomas Long said. “...We have a leading footprint across the midstream value chain in nearly all the major producing basins in the U.S. And we continue to find a significant number of accretive growth capital opportunities. Any new project announcements will be carefully evaluated with an emphasis on prudently targeting projects with very favorable returns that will ramp up quickly…
“For 2019, we remain very focused on project execution and safety as well as exercising discipline when it comes to growth. In addition, we are committed to retaining a level of cash flow that allows for flexibility to fund our growth projects.”
In January, Energy Transfer completed an open season for the Bakken Pipeline to bring the current system capacity to 570,000 b/d, according to Long.
“This capacity is available today, with new shipper commitments from the recent open season becoming effective on or before March 1,” Long said. “Continued basin production growth and fourth quarter differentials drove nominations in excess of our available capacity during the fourth quarter.
“This demand, as well as incredible demand for capacity during our recent open season, further highlights the need for additional takeaway out of the basin. As a result, we are looking at increasing system capacity to service growing demand, and we’ll make that decision at the appropriate time.”
Energy Transfer also continues to pursue shipper commitments for its 30-inch diameter Permian Gulf Coast (PGC) joint venture with Magellan Midstream Partners LP (MMP), MPLX LP and Delek US Holdings Inc.
PGC entered discussions with ExxonMobil Corp. and Plains All American Pipeline LP, which have announced their plans to move more than 1 million b/d of crude and condensate from West Texas to the Texas coast, to “potentially join their project,” Long said. “We will continue to go down parallel paths in order to evaluate and achieve the most efficient and accretive project for our partnership.”
On the gas side of the business, the interstate transportation and storage segment saw total natural gas transported volumes climb to just above 11 trillion Btu/d for 4Q2018, versus 7.2 trillion Btu/d in the year-ago quarter. The year/year gains were driven by an increase of 2.2 trillion Btu/d from the start of service on the Rover Pipeline, along with increases of 506 billion Btu/d and 475 billion Btu/d on the Panhandle and Trunkline pipelines, respectively.
The midstreamer also reported a 309 billion Btu/d increase in volumes transported on the Tiger Pipeline, driven by production increases in the Haynesville Shale. The Transwestern Pipeline saw growth of 264 billion Btu/d thanks to “favorable market opportunities in the West, Midcontinent and Waha areas” for volumes transported from the Permian Basin, according to management.
Intrastate natural gas transported volumes totaled 11.7 trillion Btu/d for the quarter, up from 8.9 trillion Btu/d in the year-ago quarter. Management attributed the increase to “favorable market pricing spreads” and to the recent consolidation of Regency Intrastate Gas LP as a subsidiary.
For 2018, Energy Transfer spent $4.9 billion on organic growth projects, primarily in its NGL and refined products and midstream segments. The company is guiding for about $5 billion on organic projects for this year.
Asked about Energy Transfer’s spending plans, and specifically whether changes have been made to its approach based on some of the delays and setbacks experienced, CEO Kelcy Warren acknowledged that management has “learned all kinds of lessons, and we’ve made mistakes, and we are correcting those mistakes and will not make those mistakes again.
“So, yeah, we’ve learned a lot. Every place is not Texas, and so we’re making adjustments.”
Warren’s comments come just weeks after Pennsylvania’s Department of Environmental Protection (DEP) suspended reviews of water permits and other pending approvals for every Energy Transfer project in the state, alleging it failed to comply with an order issued last year after one of the company’s pipelines exploded in Beaver County.
The DEP’s announcement only complicated things for other projects in the state. Affiliate Sunoco Pipeline LP’s ME 1 system remains offline after it was shut down Jan. 20 when a sinkhole exposed the system in Chester County. It wasn’t the first time that’s happened, as Sunoco was forced to start partial service late last year on ME 2 using an old refined products pipeline after state regulators forced it to stop work on a small stretch of the mainline and get new permits from DEP when other sinkholes formed in the same area.
Warren addressed the situation in Pennsylvania.
“We’re going to take our medicine and fix those mistakes and complete good projects from this point forward; it’s not to insinuate that everything we’ve done has been bad. It’s just we’ve made mistakes that we’re not proud of. So you’ll see that improve, and when we don’t make those mistakes again, our costs are going to improve and the predictability of those costs is likewise going to improve.”
Management plans to have ME 2 “running at capacity in the near future.” ME 2X mainline construction is 99% complete, and management is targeting an in-service date for late 2019.
Driven by the North Texas, Permian and Northeast regions, gathered volumes and NGL production both rose year/year in the midstream segment. Gathered volumes totaled 12.8 trillion Btu/d, versus 11.5 trillion Btu/d in the year-ago period, while 558,000 b/d of NGLs were produced in the fourth quarter from 505,000 b/d a year ago.
In the NGL and refined products transportation and services segment, NGL transportation volumes climbed to just above 1.1 million b/d, up from 963,000 b/d in 4Q2017. Refined products transportation volumes fell year/year to 601,000 b/d from 618,000 b/d.
Management attributed the growth in transported NGLs to “increased volumes from the Permian region resulting from a ramp up in production from existing customers, higher throughput volumes on Mariner West driven by end user facility constraints in the prior period and higher throughput from Mariner South resulting from increased export volumes.”
The decline in refined products transportation volumes stemmed from “the timing of turnarounds at third-party refineries in the Midwest and Northeast regions.”
NGL fractionation volumes grew to 594,000 b/d from 455,000 b/d, driven by increased Permian volumes reaching the company’s Mont Belvieu, TX, facility, while NGL and refined products terminal volumes reached 898,000 b/d from 792,000 b/d in the year-ago period.
Energy Transfer reported net income of $617 million (26 cents/unit) in the fourth quarter, versus $251 million (22 cents) in 4Q2017. For 2018, net income was $1.694 billion ($1.16/unit), versus $954 million (85 cents) for 2017.