Energy Transfer Reports Fourth Quarter 2018 Results with Record Performance and Continued Growth

  • Net income attributable to partners of $617 million, reflecting an
    increase over previous periods primarily due to the impact of the
    Merger.
  • Record Adjusted EBITDA of $2.67 billion, up 29 percent from the fourth
    quarter of 2017.
  • Record Distributable Cash Flow attributable to partners of $1.52
    billion, up 29 percent from the fourth quarter of 2017.
  • Distribution coverage ratio of 1.90x, yielding excess coverage of $716
    million of Distributable Cash Flow attributable to partners in excess
    of distributions.
  • Reaffirms 2019 outlook for Adjusted EBITDA of $10.6 billion to $10.8
    billion and capital expenditures of approximately $5 billion.

DALLAS–(BUSINESS WIRE)–Energy Transfer LP (NYSE:ET) (“ET” or the “Partnership”) today
reported financial results for the quarter and year ended December 31,
2018.

ET reported net income attributable to partners for the three months
ended December 31, 2018 of $617 million, an increase of $366 million
compared to the three months ended December 31, 2017. For the prior
period, net income attributable to partners continues to reflect only
the amount of net income attributable to the legacy ETE partners prior
to the Merger, as discussed below.

Adjusted EBITDA for the three months ended December 31, 2018 was $2.67
billion, an increase of $592 million compared to the three months ended
December 31, 2017. Results were supported by increases in all of the
Partnership’s core operations, with record operating performance in ET’s
NGL, interstate and intrastate businesses.

On a pro forma basis for the Merger, Distributable Cash Flow
attributable to partners, as adjusted, for the three months ended
December 31, 2018 was a record $1.52 billion, an increase of $338
million compared to the three months ended December 31, 2017. The
increase was primarily due to the increase in Adjusted EBITDA.

Key accomplishments and current developments:

Strategic

  • ET and Energy Transfer Operating, L.P. (“ETO”, formerly Energy
    Transfer Partners, L.P. or “ETP”) completed a simplification merger
    transaction on October 19, 2018 (the “Merger”) whereby the publicly
    held common units of ETP were exchanged for 1.28 common units of ET.
    Consequently, the former common unitholders of ETP, along with the
    existing common unitholders of ET, now comprise the current common
    unitholders of ET.

Operational

  • Frac VI, a 150,000 barrel per day fractionator at Mont Belvieu, was
    placed in service in February 2019.
  • Bakken Pipeline completed a successful open season in January 2019 to
    bring the current system capacity to 570,000 barrels per day.
  • The North Texas natural gas pipeline 160,000 MMBtu per day expansion
    was placed in service in January 2019.
  • Mariner East 2, a 350-mile NGL pipeline, was placed into service for
    both intrastate and interstate service in December 2018.
  • Construction of a 150,000 barrel per day fractionator (Frac VII) at
    Mont Belvieu and Lone Star Express 352-mile NGL pipeline expansion
    were announced in November 2018.

Financial

  • In January 2019, ET announced a quarterly distribution of $0.305 per
    unit ($1.220 annualized) on ET common units for the quarter ended
    December 31, 2018.
  • In January 2019, ETO issued an aggregate $4.00 billion principal
    amount of senior notes and used the net proceeds to repay in full ET’s
    outstanding senior secured term loan, redeem certain outstanding
    senior notes at maturity, repay a portion of the borrowings
    outstanding under ET’s revolving credit facility and for general
    partnership purposes.
  • As of December 31, 2018, ETO’s $6.00 billion revolving credit
    facilities had an aggregate $2.24 billion of available capacity, and
    ETO’s leverage ratio, as defined by its credit agreement, was 3.38x.

Energy Transfer benefits from a portfolio of assets with exceptional
product and geographic diversity. The Partnership’s multiple segments
generate high-quality, balanced earnings with no single segment
contributing more than a quarter of the Partnership’s consolidated
Adjusted EBITDA in 2018. The great majority of the Partnership’s segment
margins are fee-based and therefore have limited commodity price
sensitivity.

Conference call information:

The Partnership has scheduled a conference call for 8:00 a.m. Central
Time, Thursday, February 21, 2019 to discuss its fourth quarter 2018
results. The conference call will be broadcast live via an internet
webcast, which can be accessed through www.energytransfer.com
and will also be available for replay on the Partnership’s website for a
limited time.

Subsequent to the Merger, substantially all of the Partnership’s cash
flows are derived from distributions related to its investment in ETO,
whose cash flows are derived from its subsidiaries, including ETO’s
investments in the limited and general partner interests in Sunoco LP
and USA Compression Partners LP (“USAC”), as well as its ownership of
Lake Charles LNG Company, LLC (“Lake Charles LNG”).

Energy Transfer LP (NYSE: ET) owns and operates one of the
largest and most diversified portfolios of energy assets in the United
States, with a strategic footprint in all of the major U.S. production
basins, ET is a publicly traded limited partnership with core operations
that include complementary natural gas midstream, intrastate and
interstate transportation and storage assets; crude oil, natural gas
liquids (NGL) and refined product transportation and terminalling
assets; NGL fractionation; and various acquisition and marketing
assets. ET, through its ownership of Energy Transfer Operating, L.P.,
formerly known as Energy Transfer Partners, L.P., also owns the general
partner interests, the incentive distribution rights and 28.5 million
common units of Sunoco LP (NYSE: SUN), and the general partner interests
and 39.7 million common units of USA Compression Partners, LP (NYSE:
USAC). For more information, visit the Energy Transfer LP website at www.energytransfer.com.

Sunoco LP (NYSE: SUN) is a master limited partnership that
distributes motor fuel to approximately 10,000 convenience stores,
independent dealers, commercial customers and distributors located in
more than 30 states. SUN’s general partner is owned by Energy Transfer
Operating, L.P., a subsidiary of Energy Transfer LP (NYSE: ET). For more
information, visit the Sunoco LP website at www.sunocolp.com.

USA Compression Partners, LP (NYSE: USAC) is a
growth-oriented Delaware limited partnership that is one of the nation’s
largest independent providers of compression services in terms of total
compression fleet horsepower. USAC partners with a broad customer base
composed of producers, processors, gatherers and transporters of natural
gas and crude oil. USAC focuses on providing compression services to
infrastructure applications primarily in high-volume gathering systems,
processing facilities and transportation applications. For more
information, visit the USAC website at www.usacompression.com.

Forward-Looking Statements

This news release may include certain statements concerning expectations
for the future that are forward-looking statements as defined by federal
law. Such forward-looking statements are subject to a variety of known
and unknown risks, uncertainties, and other factors that are difficult
to predict and many of which are beyond management’s control. An
extensive list of factors that can affect future results are discussed
in the Partnership’s Annual Report on Form 10-K and other documents
filed from time to time with the Securities and Exchange Commission. The
Partnership undertakes no obligation to update or revise any
forward-looking statement to reflect new information or events.

The information contained in this press release is available on our
website at www.energytransfer.com.

 

ENERGY TRANSFER LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)
(unaudited)
   

December 31,
2018

December 31,
2017

ASSETS
Current assets $ 6,750 $ 10,683
 
Property, plant and equipment, net 66,963 61,088
 
Advances to and investments in unconsolidated affiliates 2,642 2,705
Other non-current assets, net 1,006 886
Intangible assets, net 6,000 6,116
Goodwill 4,885   4,768  
Total assets $ 88,246   $ 86,246  
LIABILITIES AND EQUITY
Current liabilities $ 9,310 $ 7,897
 
Long-term debt, less current maturities 43,373 43,671
Non-current derivative liabilities 104 145
Deferred income taxes 2,926 3,315
Other non-current liabilities 1,184 1,217
 
Commitments and contingencies
Redeemable noncontrolling interests 499 21
 
Equity:
Total partners’ capital (deficit) 20,559 (1,196 )
Noncontrolling interest 10,291   31,176  
Total equity 30,850   29,980  
Total liabilities and equity $ 88,246   $ 86,246  
 
   

ENERGY TRANSFER LP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(In millions, except per unit data)
(unaudited)
 
Three Months Ended
December 31,
Year Ended
December 31,
2018   2017 2018   2017
REVENUES $ 13,573 $ 11,451 $ 54,087 $ 40,523
COSTS AND EXPENSES:
Cost of products sold 9,977 8,721 41,658 30,966
Operating expenses 809 704 3,089 2,644
Depreciation, depletion and amortization 750 677 2,859 2,554
Selling, general and administrative 187 119 702 599
Impairment losses 431   940   431   1,039  
Total costs and expenses 12,154   11,161   48,739   37,802  
OPERATING INCOME 1,419 290 5,348 2,721
OTHER INCOME (EXPENSE):
Interest expense, net of interest capitalized (544 ) (482 ) (2,055 ) (1,922 )
Equity in earnings (losses) of unconsolidated affiliates 86 (84 ) 344 144
Impairment of investment in unconsolidated affiliate (313 ) (313 )
Losses on extinguishments of debt (6 ) (64 ) (112 ) (89 )
Gains (losses) on interest rate derivatives (70 ) (9 ) 47 (37 )
Other, net (35 ) 73   62   206  
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
(BENEFIT)
850 (589 ) 3,634 710
Income tax expense (benefit) from continuing operations (2 ) (1,747 ) 4   (1,833 )
INCOME FROM CONTINUING OPERATIONS 852 1,158 3,630 2,543
Income (loss) from discontinued operations, net of income taxes   10   (265 ) (177 )
NET INCOME 852 1,168 3,365 2,366
Less: Net income attributable to noncontrolling interest 220 917 1,632 1,412
Less: Net income attributable to redeemable noncontrolling interests 15     39    
NET INCOME ATTRIBUTABLE TO PARTNERS 617 251 1,694 954
Convertible Unitholders’ interest in income 12 33 37
General Partner’s interest in net income     3   2  
Limited Partners’ interest in net income $ 617   $ 239   $ 1,658   $ 915  
NET INCOME PER LIMITED PARTNER UNIT:
Basic $ 0.26 $ 0.22 $ 1.16 $ 0.85
Diluted $ 0.26 $ 0.22 $ 1.15 $ 0.83
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING:
Basic 2,332.1 1,079.2 1,423.8 1,078.2
Diluted 2,339.4 1,151.5 1,461.4 1,150.8
 
   

ENERGY TRANSFER LP AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

(Dollars and units in millions)
(unaudited)
 
Three Months Ended
December 31,
Year Ended
December 31,
2018   2017 2018   2017
Reconciliation of net income to Adjusted EBITDA and Distributable
Cash Flow (a) (b):
Net income $ 852 $ 1,168 $ 3,365 $ 2,366
(Income) loss from discontinued operations (10 ) 265 177
Interest expense, net 544 482 2,055 1,922
Impairment losses 431 940 431 1,039
Income tax expense (benefit) from continuing operations (2 ) (1,747 ) 4 (1,833 )
Depreciation, depletion and amortization 750 677 2,859 2,554
Non-cash compensation expense 23 23 105 99
(Gains) losses on interest rate derivatives 70 9 (47 ) 37
Unrealized (gains) losses on commodity risk management activities (244 ) (37 ) 11 (59 )
Losses on extinguishments of debt 6 64 112 89
Inventory valuation adjustments 135 (16 ) 85 (24 )
Impairment of investment in an unconsolidated affiliate 313 313
Equity in (earnings) losses of unconsolidated affiliates (86 ) 84 (344 ) (144 )
Adjusted EBITDA related to unconsolidated affiliates 152 162 655 716
Adjusted EBITDA from discontinued operations 44 (25 ) 223
Other, net 38   (79 ) (21 ) (155 )
Adjusted EBITDA (consolidated) 2,669 2,077 9,510 7,320
Adjusted EBITDA related to unconsolidated affiliates (152 ) (162 ) (655 ) (716 )
Distributable Cash Flow from unconsolidated affiliates 95 102 407 431
Interest expense, net (544 ) (497 ) (2,057 ) (1,958 )
Subsidiary preferred unitholders’ distributions (54 ) (12 ) (170 ) (12 )
Current income tax expense (7 ) (10 ) (472 ) (39 )
Transaction-related income taxes 470
Maintenance capital expenditures (137 ) (157 ) (510 ) (479 )
Other, net 19   5   49   67  
Distributable Cash Flow (consolidated) 1,889 1,346 6,572 4,614
Distributable Cash Flow attributable to Sunoco LP (100%) (115 ) (89 ) (446 ) (449 )
Distributions from Sunoco LP 43 68 166 259
Distributable Cash Flow attributable to USAC (100%) (55 ) (148 )
Distributions from USAC 21 73
Distributable Cash Flow attributable to PennTex Midstream Partners,
LP (“PennTex”) (100%) (c)
(19 )
Distributions from PennTex to ETO (c) 8
Distributable Cash Flow attributable to noncontrolling interest in
other non-wholly-owned consolidated subsidiaries
(294 ) (151 ) (874 ) (350 )
Distributable Cash Flow attributable to the partners of ET – pro
forma for the Merger (a)
1,489 1,174 5,343 4,063
Transaction-related expenses 27   4   52   57  
Distributable Cash Flow attributable to the partners of ET, as
adjusted – pro forma for the Merger (a)
$ 1,516   $ 1,178   $ 5,395   $ 4,120  
 
   
Three Months Ended
December 31,
Year Ended
December 31,
2018   2017 2018   2017
Distributions to partners – pro forma for the Merger (a):
Limited Partners (d) $ 799 $ 708 $ 3,104 $ 2,669
General Partner 1   1   4   4
Total distributions to be paid to partners $ 800   $ 709   $ 3,108   $ 2,673
Common Units outstanding – end of period – pro forma for the Merger
(a)
2,619.4   2,532.5   2,619.4   2,532.5
Distribution coverage ratio – pro forma for the Merger (a)(b) 1.90x 1.66x 1.74x 1.54x
 

(a) The closing of the Merger (as discussed above) has impacted the
Partnership’s calculation of Distributable Cash Flow attributable to
partners, as well as the number of ET Common Units outstanding and the
amount of distributions to be paid to partners. In order to provide
information on a comparable basis for pre-Merger and post-Merger
periods, the Partnership has included certain pro forma information.

Pro forma Distributable Cash Flow attributable to partners reflects the
following merger related impacts:

  • ETO is reflected as a wholly-owned subsidiary and pro forma
    Distributable Cash Flow attributable to partners reflects ETO’s
    consolidated Distributable Cash Flow (less certain other adjustments,
    as follows).
  • Distributions from Sunoco LP and USAC include distributions to both ET
    and ETO.
  • Distributions from PennTex are separately included in Distributable
    Cash Flow attributable to partners.
  • Distributable Cash Flow attributable to noncontrolling interest in our
    other non-wholly-owned subsidiaries is subtracted from consolidated
    Distributable Cash Flow to calculate Distributable Cash Flow
    attributable to partners.

Pro forma distributions to partners include actual distributions to
legacy ET partners, as well as pro forma distributions to legacy ETO
partners. Pro forma distributions to ETO partners are calculated
assuming (i) historical ETO common units converted under the terms of
the Merger and (ii) distributions on such converted common units were
paid at the historical rate paid on ET Common Units.

Pro forma Common Units outstanding include actual Common Units
outstanding, in addition to Common Units assumed to be issued in the
Merger, which are based on historical ETO common units converted under
the terms of the Merger.

For the year ended December 31, 2017, the calculation of Distributable
Cash Flow and the amounts reflected for distributions to partners and
common units outstanding also reflect the pro forma impacts of the
Sunoco Logistics Merger as though the merger had occurred on January 1,
2017.

(b) Adjusted EBITDA, Distributable Cash Flow and distribution coverage
ratio are non-GAAP financial measures used by industry analysts,
investors, lenders, and rating agencies to assess the financial
performance and the operating results of ET’s fundamental business
activities and should not be considered in isolation or as a substitute
for net income, income from operations, cash flows from operating
activities, or other GAAP measures.

There are material limitations to using measures such as Adjusted
EBITDA, Distributable Cash Flow and distribution coverage ratio,
including the difficulty associated with using either as the sole
measure to compare the results of one company to another, and the
inability to analyze certain significant items that directly affect a
company’s net income or loss or cash flows. In addition, our
calculations of Adjusted EBITDA, Distributable Cash Flow and
distribution coverage ratio may not be consistent with similarly titled
measures of other companies and should be viewed in conjunction with
measurements that are computed in accordance with GAAP, such as segment
margin, operating income, net income, and cash flow from operating
activities.

Definition of Adjusted EBITDA

We define Adjusted EBITDA as total partnership earnings before interest,
taxes, depreciation, depletion, amortization and other non-cash items,
such as non-cash compensation expense, gains and losses on disposals of
assets, the allowance for equity funds used during construction,
unrealized gains and losses on commodity risk management activities,
non-cash impairment charges, losses on extinguishments of debt and other
non-operating income or expense items. Unrealized gains and losses on
commodity risk management activities include unrealized gains and losses
on commodity derivatives and inventory fair value adjustments (excluding
lower of cost or market adjustments). Adjusted EBITDA reflects amounts
for less than wholly-owned subsidiaries based on 100% of the
subsidiaries’ results of operations and for unconsolidated affiliates
based on our proportionate ownership.

Adjusted EBITDA is used by management to determine our operating
performance and, along with other financial and volumetric data, as
internal measures for setting annual operating budgets, assessing
financial performance of our numerous business locations, as a measure
for evaluating targeted businesses for acquisition and as a measurement
component of incentive compensation.

Definition of Distributable Cash Flow

We define Distributable Cash Flow as net income, adjusted for certain
non-cash items, less distributions to preferred unitholders and
maintenance capital expenditures. Non-cash items include depreciation,
depletion and amortization, non-cash compensation expense, amortization
included in interest expense, gains and losses on disposals of assets,
the allowance for equity funds used during construction, unrealized
gains and losses on commodity risk management activities, non-cash
impairment charges, losses on extinguishments of debt and deferred
income taxes. Unrealized gains and losses on commodity risk management
activities includes unrealized gains and losses on commodity derivatives
and inventory fair value adjustments (excluding lower of cost or market
adjustments). For unconsolidated affiliates, Distributable Cash Flow
reflects the Partnership’s proportionate share of the investee’s
distributable cash flow.

Distributable Cash Flow is used by management to evaluate our overall
performance. Our partnership agreement requires us to distribute all
available cash, and Distributable Cash Flow is calculated to evaluate
our ability to fund distributions through cash generated by our
operations.

On a consolidated basis, Distributable Cash Flow includes 100% of the
Distributable Cash Flow of ET’s consolidated subsidiaries. However, to
the extent that noncontrolling interests exist among our subsidiaries,
the Distributable Cash Flow generated by our subsidiaries may not be
available to be distributed to our partners. In order to reflect the
cash flows available for distributions to our partners, we have reported
Distributable Cash Flow attributable to partners, which is calculated by
adjusting Distributable Cash Flow (consolidated), as follows:

  • For subsidiaries with publicly traded equity interests, other than
    ETO, Distributable Cash Flow (consolidated) includes 100% of
    Distributable Cash Flow attributable to such subsidiary, and
    Distributable Cash Flow attributable to our partners includes
    distributions to be received by the parent company with respect to the
    periods presented.
  • For consolidated joint ventures or similar entities, where the
    noncontrolling interest is not publicly traded, Distributable Cash
    Flow (consolidated) includes 100% of Distributable Cash Flow
    attributable to such subsidiaries, but Distributable Cash Flow
    attributable to partners reflects only the amount of Distributable
    Cash Flow of such subsidiaries that is attributable to our ownership
    interest.

For Distributable Cash Flow attributable to partners, as adjusted,
certain transaction-related and non-recurring expenses that are included
in net income are excluded.

Definition of Distribution Coverage Ratio

Distribution coverage ratio for a period is calculated as Distributable
Cash Flow attributable to partners, as adjusted, divided by
distributions expected to be paid to the partners of ET in respect of
such period.

(c) Beginning with the second quarter of 2017, PennTex became a
wholly-owned subsidiary of ETO. The amounts reflected above for PennTex
relate only to the first quarter of 2017, and no distributable cash flow
has been attributed to noncontrolling interests in PennTex subsequent to
March 31, 2017.

(d) Includes distributions to unitholders who elected to participate in
a plan to forgo a portion of their future potential cash distributions
on common units and reinvest those distributions in ETE Series A
convertible preferred units representing limited partner interests in
the Partnership. The quarter ended March 31, 2018 was the final quarter
of participation in the plan.

 
ENERGY TRANSFER LP AND SUBSIDIARIES
SUMMARY ANALYSIS OF QUARTERLY RESULTS BY SEGMENT
(Tabular dollar amounts in millions)
(unaudited)
 

As a result of the Merger in October 2018, our reportable
segments were reevaluated and currently reflect the following
segments.

 
Three Months Ended
December 31,
2018   2017
Segment Adjusted EBITDA:
Intrastate transportation and storage $ 306 $ 146
Interstate transportation and storage 479 342
Midstream 402 393
NGL and refined products transportation and services 569 433
Crude oil transportation and services 636 544
Investment in Sunoco LP 180 158
Investment in USAC 104
All other (7 ) 61
Total Segment Adjusted EBITDA $ 2,669   $ 2,077

In the following analysis of segment operating results, a measure of
segment margin is reported for segments with sales revenues. Segment
Margin is a non-GAAP financial measure and is presented herein to assist
in the analysis of segment operating results and particularly to
facilitate an understanding of the impacts that changes in sales
revenues have on the segment performance measure of Segment Adjusted
EBITDA. Segment Margin is similar to the GAAP measure of gross margin,
except that Segment Margin excludes charges for depreciation, depletion
and amortization.

In addition, for certain segments, the sections below include
information on the components of Segment Margin by sales type, which
components are included in order to provide additional disaggregated
information to facilitate the analysis of Segment Margin and Segment
Adjusted EBITDA. For example, these components include transportation
margin, storage margin, and other margin.

Contacts

Energy Transfer

Investor Relations:
Bill Baerg, Brent Ratliff, Lyndsay
Hannah, 214-981-0795
or
Media Relations:
Vicki
Granado, 214-840-5820

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