Energy News Today

Energy Transfer’s Earnings Are Feeling Some Pressure From Lower Oil Prices


Energy Transfer (NYSE: ETP) isn’t immune to the impact of falling oil prices. That was evident in its first-quarter report, where the master limited partnership (MLP) posted lower earnings and cash flow. While the company expects this trend to continue over the coming quarters, causing it to reduce its full-year guidance, it still plans to maintain its high-yielding distribution.  

Drilling down into Energy Transfer’s first-quarter earnings

Metric

Q1 2020

Q1 2019

Year-Over-Year Change

Adjusted EBITDA

$2.635 billion

$2.735 billion

(3.7%)

Distributable cash flow (DCF)

$1.417 billion

$1.594 billion

(11.1%)

DCF per unit

$0.53

$0.61

(13.1%)

Distribution coverage ratio

1.72 times

1.99 times

(13.6%)

Data source: Energy Transfer. 

Overall, Energy Transfer’s earnings slipped by about 4% during the first quarter, while its cash flow fell by a low double-digit rate. That still enabled it to generate enough cash to comfortably cover its distribution, which is impressive considering that the payout yields an eye-popping 16%. Because of that, it was able to retain nearly $600 million in cash to help finance expansion projects.

Energy Transfer’s diversified business model helped cushion the blow from a few weak segments during the quarter:

Energy Transfer's earnings by segment in the first quarter of 2020 and 2021.

Data source: Energy Transfer. Chart by the author.

We’ll start with the two biggest positives: Natural gas liquids (NGLs) and refined products, as well as its investment in Sunoco LP (NYSE:SUN). NGLs and refined-product earnings grew by more than 8%. The main drivers were higher volumes on its Mariner East system, the completion of its JC Nolan diesel fuel pipeline joint venture with Sunoco, and higher export volumes. Its share of Sunoco’s earnings, meanwhile, increased more than 35% thanks to a higher profit on gallons sold and a make-up payment under a fuel-supply agreement, which more than offset a 2.2% decline in volumes sold.

Unfortunately, those positives weren’t enough to offset some weakness in a few of its other segments, led primarily by its crude oil and interstate gas-pipeline businesses. Crude oil earnings tumbled 20%, due to an adjustment in the value of its inventories as a result of lower oil prices and lower rates on its Texas oil pipeline system. Those factors more than offset the increase from terminal operations acquired last year and higher volumes on its Bakken and Bayou Bridge pipelines. Interstate gas pipeline earnings, meanwhile, declined by about 11% due to lower rates and volumes on several systems as a result of less favorable market conditions and a contract rate adjustment at its Lake Charles liquified natural gas (LNG) facility.

Sunset through the twists of a pipeline system.

Image source: Getty Images.

A look at what’s ahead for Energy Transfer

The volatility in the oil and gas market is…



Read More: Energy Transfer’s Earnings Are Feeling Some Pressure From Lower Oil Prices

2020-05-11 07:00:00

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