Energy Transfer LP (ET) is in the process of converting a portion of the Mariner East natural gas liquids (NGL) pipeline to refined products to capture price blowouts between Chicago and New York markets this winter.
Newly named Co-CEO Mackie McCrea told investors during the third quarter earnings call last Wednesday the repurposed portion of the eight-inch diameter Mariner 1 line is expected to be in service by the end of the year. The conversion to refined products “should provide significant upside revenue for an asset that doesn’t limit us for what we can do with the remaining portions of the Mariner system.”
Mariner East consists of three pipelines that move NGLs from processing facilities in Ohio, Pennsylvania and West Virginia to the Marcus Hook Industrial Complex near Philadelphia.
ET expects to continue transporting all the liquefied petroleum gas and ethylene that is contracted on Mariner East. It’s also in the process of contracting additional volumes, McCrea said. The partnership experienced the highest average quarterly volumes through the pipeline system, with year-to-date NGL volumes up 40% over a year-to-date 2019.
NGLs, particularly in West Texas and, “to a certain degree,” the Eagle Ford Shale in South Texas, are core areas for ET’s midstream assets. Management is “somewhat optimistic” that West Texas Intermediate oil prices remained near the $40/bbl mark since May, according to McCrea. In talking to producer customers, and taking into account the number of drilled but uncompleted wells in West Texas, management thinks producer customers may be “drilling around a lot of these areas.”
ET expects to see 15-20% volumes growth “by the end of next year,” McCrea said. “I wouldn’t say we’re overly bullish, but we’re certainly optimistic that we’ll see volumes grow on our systems.”
The midstreamer also remains confident that Dakota Access Pipeline (DAPL) should continue operating despite various appeals. An appeals process with respect to Lake Oahe litigation is ongoing; oral arguments took place last Wednesday.
“We continue to believe that our legal positions in the case are strong, and we are confident that our pipeline will continue to operate as normal,” said CFO Tom Long. “The pipeline remains in service today and like all of our assets, we will continue to operate it safely and efficiently.”
ET also is moving forward with the Bakken Shale pipeline’s capacity optimization. Last month, it received regulatory approval from the Illinois Commerce Commission, the last remaining state regulatory approval required to proceed. The initial phase of the optimization would accommodate the volume commitments made by shippers in open seasons.
“We now expect this additional capacity to be in service late in the third quarter of 2021,” Long said.
The project would allow ET to build a pump station in Hancock County, IL, and expand other pumps operating in Patoka, IL. The work would boost DAPL capacity to 1.1 million b/d from 570,000 b/d.
McCrea took the time during the earnings call to comment on how a potential change following the presidential election could impact ET. The executive said there is “some uncertainty” in Democrat Joseph R. Biden’s positions related to pipelines and hydraulic fracturing. He said there could be some negatives from a Democrat-controlled government as regulations would “no doubt increase,” so it could be much more “difficult” and “time-consuming” to permit and construct pipelines.
“So companies like ourselves, we kind of standalone with our footprint throughout the country,” McCrea said. “We go into every major basin. We feel pretty good about that aspect.”
As of Friday afternoon, there was no certainty as to whether control of the Senate would flip to Democrats; the House remained in Democrats’ hands. The presidential election also had not been called.
Biden has suggested he could impose restrictions on drilling on federal lands if he is elected. If that were to occur, it would have “very little to no impact on Energy Transfer as far as the exposure we have to federal lands and potential reduction or removal of fracking from those lands,” McCrea said.
At the end of September, ET had spent slightly under $2.5 billion on organic growth projects, and it now expects to spend less than $3.3 billion on organic growth for the full year, which is more than $100 million below previous estimates. ET expects NGL and refined products to make up as much as 75% of planned capital expenditures (capex) in 2021, with midstream encompassing up to 15% and oil optimizations making up 5-10%. The midstreamer is projecting 2021 growth capex to be around $1.3 billion, and growth capital in 2022 and 2023 to be between $500 million and $700 million per year.
ET reported a third quarter net loss of $782 million (minus 29 cents/share), which included one-time impairments and joint venture investments totaling $1.6 billion. This compares with the year-ago net income of $858 million (33 cents). Distributable cash flow (DCF) was $1.69 billion, up from $1.55 billion last year.
In other midstream reports, DCP Midstream LP’s management team also downplayed the impacts of a possible Biden administration. CEO Wouter van Kempen said management’s consistent strategy is built for the long term and is “not reactive to election outcomes.”
Speaking Thursday on the third quarter earnings call, he said DCP would continue to “proactively engage in energy policy and efficacy at all levels of government, including the federal, state and local officials.”
DCP’s experiences in Colorado have prepared management with the knowledge how to successfully operate within the country’s “most stringent regulations,” according to van Kempen. The business is centered around “shipping the industry’s leading cutting-edge technologies” to ensure climate solutions of the future, “not a part of an obsolete past.”
“Natural gas will be a critical piece of our energy ecosystem for decades to come,” he said.
Rather than focusing on who becomes the next U.S. President, the company chief said DCP would continue to focus on optimizing its assets and maintaining capital discipline in the year ahead. DCP generated $130 million in excess free cash flow and reduced debt by $175 million year to date, including $156 million during the quarter, which “demonstrates the resiliency and durability of the DCP business model,” according to van Kempen.
“What started as swift and aggressive self-help measures at the onset of this downturn has now evolved into a sustainable restructuring of our cost basis,” the CEO said. “We remain committed to strengthening the balance sheet to ensure stability in times of continued uncertainty.”
DCP reported third quarter net earnings of $111 million (46 cents/share), up from a $178 million net loss (minus $1.59) in 3Q019. DCF was $232 million, up from $190 million last year.
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