Tag Archives: Energy Transfer

Business, Finance, Occupation & Industry

Energy Tangle: Making Sense of the ETP Holdco Buyout

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By Aimee Duffy, The Motley Fool

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Earlier this week Energy Transfer Partners announced it was buying Energy Transfer Equity‘s stake in ETP Holdco for $3.75 billion. ETE is the general partner to the master limited partnership ETP. That relationship, together with the similar names of all of these entities, can complicate one’s understanding of what exactly this acquisition means. With that in mind, today we’re going beyond the press release and breaking down this deal. For the sake of clarity, the Energy Transfer entities will be referred to by their respective ticker symbols.

Holdco refresher
ETP and ETE formed Holdco in October 2012 to jointly own the equity interests in Southern Union Company and Sunoco. ETE closed on the Southern Union merger in March of last year, while ETP closed on the Sunoco one in October. At the time of creation, ETE had a 60% stake and ETP had a 40% stake, though the majority board membership belonged to ETP.

Southern Union‘s assets are primarily natural gas pipeline systems. Its 15,000 miles include the Panhandle Eastern Pipeline Company, the Trunkline Gas Company, the Sea Robin Pipeline Company, Trunkline LNG Company, Southwest Gas Storage, and an operating interest in Florida Gas Transmission.

Energy Transfer previously announced that it was selling a portion of Southern Union‘s original asset base to Laclede for $1 billion. The assets involved in the divestiture were Missouri Gas Energy and the New England Gas Company. Additionally, ETE announced last month that it would sell Southern Union Gas Services to its other MLP, Regency Energy Partners , for $1.5 billion.

Sunoco’s assets include 4,900 gas stations and convenience stores and its stake in the midstream MLP Sunoco Logistics Partners . That stake is important; it is made up of 32.4% of SXL‘s limited partner units, as well as its general partner stake and incentive distribution rights. SXL‘s assets include more than 5,000 miles of crude oil pipelines, 2,500 miles of refined products pipelines, and 42 refined products terminals.

The other side of the deal
ETP obviously gets full control of all of the Southern Union and Sunoco assets. ETE will receive $1.4 billion in cash, and $2.35 billion in ETP units. ETE will forgo incentive distribution rights on the new units for the first eight consecutive quarters after the close. From there, it will receive 50% of the IDRs for eight consecutive quarters, then moving on to 100% receipt of IDRs.

Remember, many general partners forgo incentive distribution rights on big deals like this in order to give the MLP a chance to integrate assets and realize the commercial benefits of the transaction.

Foolish takeaway
Both Energy Transfer entities are touting this deal as a means to simplify organizational structure, and it certainly does that. Streamlining has been one of management’s goals, and following through on this is important. Especially given that one of management’s other goals is to increase distribution payments to investors.

Though its structure can be confusing, at its …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Why Do Energy Companies Form Joint Ventures?

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By Matt DiLallo, The Motley Fool

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A joint venture, as you know, is a business agreement between two parties to develop a new entity whereby each party contributes assets. Those assets could be cash, equity, operating assets or intellectual property. The key is that the companies see greater value in combining the assets than in operating them separately.

The energy industry is the king of joint ventures. There are two driving forces behind this phenomenon. First, energy exploration and production is very, very expensive. Many smaller firms simply cannot afford to develop the resources they’ve discovered. Energy exploration is also a very risky business. Joint ventures are great for spreading around that risk.

Some companies, like Devon Energy , have a specific rationale in determining how it plans to utilize joint venture partners. The company specifically utilizes partners in new venture exploration because it:

  • Improves capital efficiency
  • Accelerates de-risking and commercialization
  • Mitigates exploration risk
  • Increase flexibility to generate new prospects
  • Preserves cash flow for development projects

The company’s most recent joint ventures include trading about a third of its emerging exploration acreage in two separate deals with foreign operators. Devon brought in about $4 billion in cash and drilling carries to fund these developments at a faster pace than it would have been able to do on its own.

Others take a slightly different approach. Chesapeake Energy  just recently entered into its own joint venture with a foreign producer. In this case, the company just took the cash. The billion dollars will help the cash-strapped company to fund its developments in this acreage as well as across its portfolio. Its Chinese partner is looking to Chesapeake to provide it with on the job training that it can take back home to produce its own unconventional resources. In both cases the foreign partner was looking to exchange cash for access to emerging resources: One deal for the seller was about risk management, while cash management played a key role in the other transaction.

Energy industry ventures aren’t just for upstream exploration activities. There are myriad examples in the midstream sector as well. These deals tend to have a slightly more strategic rationale behind them.

One recent example saw Energy Transfer  and Enbridge  team up to convert several segments of the Trunkline pipeline from moving natural gas to oil in a new 50-50 joint venture. The project will provide crude oil pipeline access from an Illinois hub to the eastern Gulf Coast refining market. The oil from the Illinois hub will be sourced from the Bakken Shale and Canadian oil sands, which currently can’t access that market by pipeline.

This deal is about access and diversification. Enbridge has the access to these crude oil basins through its Southern Access Extension that is currently in development, but it needs a way to get that crude to the Gulf Coast. Energy Transfer‘s Trunkline pipeline would do the trick. Energy Transfer on the other hand has been looking to diversify its revenue into crude oil transportation. By …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Double-Digit Distribution Growth at This MLP

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By Matt DiLallo, The Motley Fool

EPD Dividend Chart

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A master limited partnership that can grow its dividend tends to reward investors to a much more than those that don’t grow the payout. Take a look at the following chart of top MLPs Enterprise Products Partners and Energy Transfer Partners :

EPD Dividend data by YCharts

Do you notice that in the past two years Enterprise’s distribution and units have been rising steadily? Do you also see that Energy Transfer‘s distribution has been steady but its units have fallen? That’s why income-seeking investors are best served by investing in MLPs that offer a growing income stream.

A name income investors might want to take a look at is Crosstex Energy  and its publicly traded general partner Crosstex Energy Inc. . Since 2010 both have offered double-digit-income growth as you can see from the chart below:

Source: Crosstex Investor Presentation

The company has several exciting growth projects in the pipeline which should keep that income flowing even higher in the future. Among them, Crosstex has several projects serving the Gulf Coast petrochemical market including phase one of its Cajun-Sibon expansion. The project, which is expected to be completed in the middle of this year, includes expanding the capacity of its Eunice natural gas liquids fractionator as well as a new natural gas liquids pipeline. Once complete the project will add $40 million-$45 million in adjusted EBITDA, which is a nice boost for a company that generated just $214 million in adjusted EBITDA last year.

Phase two of the Cajun-Sibon expansion should be in service by the second half of 2014. This project will add another $75 million-$85 million in adjusted EBITDA. Crosstex has other smaller projects nearing completion which include finishing phase two of its Riverside Crude Terminal. Once complete by the middle of this year both phases of that project will add about $10 million in fee-based cash flow.

That fee-based cash flow is important for investors, as it’s not sensitive to commodity price volatility. In 2010, 30% of Crosstex’s cash flows were subject to commodity prices. By the end of 2014 just 13% of its cash flow will be sensitive to commodities. By the end of 2014 the company will have spent more than a billion dollars to transform its business. That’s money well spent; it not only grows Crosstex’s income, but it makes that income more secure.

Looking even further ahead, Crosstex has several additional expansion opportunities that represent another billion dollars in potential capital investments. Among these opportunities are phases three and four at Cajun-Sibon, a third phase at Riverside, and multiple opportunities at its Ohio River Valley assets serving the emerging Utica Shale.

That’s the recipe for continued distribution growth for Crosstex investors. Even better, all that growth comes with a current distribution yield of nearly 7.5%. While that’s in line with what Energy Transfer investors are getting today, it is a lot more than the 4.7% new investors would get by …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Why Energy Transfer Is Poised to Keep Rallying

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By Brian Pacampara, Pacampara, The Motley Fool

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool’s free investing community, natural gas transporter Energy Transfer Partners has earned a coveted five-star ranking.

With that in mind, let’s take a closer look at Energy Transfer and see what CAPS investors are saying about the stock right now.

Energy Transfer facts

Headquarters (Founded)

Dallas (2002)

Market Cap

$14.1 billion

Industry

Oil and gas transportation and storage

Trailing-12-Month Revenue

$15.7 billion

Management

CEO Kelcy Warren (since 2007)
CFO Martin Salinas Jr. (since 2008)

Return on Equity (Average, Past 3 Years)

13.3%

Cash/Debt

$311.0 million / $16.2 billion

Dividend Yield

7.5%

Competitors

DCP Midstream Partners
El Paso
Enbridge

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 98% of the 920 members who have rated Energy Transfer believe the stock will outperform the S&P 500 going forward.

Just yesterday, one of those Fools, NarGuy, offered a cautiously bullish take on the Energy Transfer opportunity:

[T]he fundamentals and growth prospects of this company can’t really be beat. Not to mention the dividend. My only concern is that its performance will be tied to commodities of course, which is not something I love. I prefer companies that are more diversified. But this looks like a winner in the MLP space.

If you want market-thumping returns, you need to put together the best portfolio you can. Of course, despite a strong five-star rating, Energy Transfer may not be your top choice.

If that’s the case, we’ve compiled a special free report for investors called “The 3 Dow Stocks Dividend Investors Need,” which uncovers a few other juicy income opportunities. The report is 100% free, but it won’t be around forever, so click here to access it now.

Want to see how well (or not so well) the stocks in this series are performing? Follow the TrackPoisedTo CAPS account.

The article Why Energy Transfer Is Poised to Keep Rallying originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends DCP Midstream Partners. Try any of our Foolish newsletter services free for 30 days. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Source: FULL ARTICLE at DailyFinance