Q3 2024 Energy Transfer LP Earnings Call

Hello and welcome to the Energy Transfer 3rd Quarter 2024 earnings conference call. All participants will be in listen only mode.

Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

You may press star then one on your telephone keypad and to address in the queue, you may press star then two. As a reminder, this conference is being recorded. I would now like to hand the call to Tom Long. Please go ahead.

Tom Long: Thank you, operator and good afternoon everyone and welcome to the Energy Transfer 3rd quarter 2024 earnings call.

I'm also joined today by Mackey McCree and other members of the Senior Management Team who are going to be able to help answer your questions after our prepared remarks.

Hopefully you saw the press release we issued her this afternoon as reminder our earnings release contains a thorough MDNA that goes through the segment results in detail and we encourage everyone to look at their release.

as well as the slides posted to our website to gain a full understanding of the quarter and our growth opportunities.

Also as a reminder, we will be making forward-looking statements within the meeting of Section 21E of the Security Exchange Act of 1934.

These statements are based upon our current beliefs as well as certain assumptions.

Tom Long: and information currently available to us. And are discussed in more details in our forms TNQ for the quarter-ended September 30, 2024, which we expect to file tomorrow November 7th.

I'm also referred to a Justin Eba-Di and Distributal Cashflow, or DCF both of which are non-gap financial measures.

Tom Long: You'll find a reconciliation of our non-gap measures on our website. Let's start with the financial results. For the third quarter of 2024, we generated a just-debit.3.96 billion dollars compared to 3.5 billion dollars for the third quarter of 2023.

Tom Long: We had record volumes through our crude oil, midstream gathering, and in GL pipelines, as well as through our inGL Fractionators. In addition, we saw strong crude and inGL exports during the quarter and increased volumes through our refined products pipelines.

DCF, the Trouble to the Partners of Energy Transfer as adjusted, was $1.99 billion. Consistent with the third quarter of last year.

In the first nine months of 2024, we spent approximately $1.7 billion on organic growth capital, primarily in the midstream and inGL or fine product segments, excluding some and USA compression capbacks.

Now, turning results by segment for the third quarter will start within GL and refined products. So just as EBDAV was $1.01 billion compared to $1.08 billion for the third quarter, $2.23.

This was primarily due to growth across our Mariner East Pipeline operations, as well as strong NGO exports.

which were upset by lower gains from the optimization of hedged NGO inventory as we recognized over $100 million in gains in the third quarter of last year compared to $30 million this year.

For mid-string, adjusted EBITDA was $816 million compared to $631 million for the third quarter of 2023.

Tom Long: The increase was primarily due to higher volumes in the premium, bass and anig offered as well as the addition of the Crestwood and WTG assets in November 2023 and July 2024 respectively.

Tom Long: In addition, during the quarter, we recognize 70 million dollars in proceeds from a one-time business interruption claim.

For the Prudel segment, Adjusted EBITDA with $768 million compared to $76 million for the third quarter of 2023.

Tom Long: The increase was primarily due to record crude oil transportation through, but higher crude oil exports.

which were up 49% the recently formed Permian Joint Venture with Sun as well as the acquisition of the Crestwood and WTGS sets. Exciting these acquisitions crude oil transportation throughput on our base business increased 4%.

For the Interstate National Gas segment, adjusted EBITDA was $460 million compared to $491 million for the third quarter of 2023.

Tom Long: During the quarter we saw higher demand on pebble, trine and go for un. This was offset by lower IT utilization in dry gas areas due to the lower gas prices and weaker spreads.

Tom Long: Additionally, we had higher operating expenses primarily due to a one-time benefit recorded in the third quarter of 2023 that reduced operating expenses and increased maintenance project calls.

Tom Long: And for the interest date, natural gas segment, adjusted EBITDA was $329 million compared to $244 million in the third quarter of last year. The increase was primarily due to approximately $100 million of increased gains related to pipeline optimization opportunities.

Turning to our recently completed acquisition of WTG, which enhances our Permian-Based and Operations and downstream businesses.

Tom Long: Integration of the combined assets is underway and we have recently approved several projects that are expected to enhance reliability, reduce losses, and improve the overall efficiencies of the system for our customers.

Also in July, energy transfer and Sonoco LP announced the formation of a joint venture combining their respective crude oil and produced water gathering assets in the Permian Basin.

Tom Long: We're making good progress on integrating the combined systems and our executing on synergies and growth opportunities that will drive additional value while expanding our market and service offerings for our customers.

Tom Long: Now turning to our 2024 Organic Growth Capital Guide at our growth projects, we now expect 2024 Growth Capital expenditures to be approximately $2.9 billion, which will be spent primarily in the NGO and refined products and midstream segments.

Tom Long: At our Needle and Terminal Construction of the Expansion Store in GLX port capacity continues to progress and the project remains own schedule for an anticipated in service for the initial phase in mid-2025.

Tom Long: and my bell here.

Tom Long: As mentioned on our last call, we have approved our ninth fractionator, which will have a design capacity of 165,000 barrels per day and is expected to be in service in Q4, 2020.

Tom Long: This will bring our total fractionation capacity at Montbeau view to more than 1.3 million girls per day.

Tom Long: Taking a look at our Permian Processing Expansions, we recently completed the 50 million cubic foot per day upgrade to our Orlip East Processing Plan.

Tom Long: and Construction continues on upgrades to three other processing facilities, which will add incremental processing capacity and west access of approximately 150 million cubic feet per day.

Tom Long: Additionally, construction of the 200 million cubic feet per day, badger processing plant in the Permian Basin is underway. As a reminder, this plant, which is expected being serviced in mid-2020, will utilize a nightle plant that is being relocated to the Delaware Basin.

Tom Long: Looking at our crude assets, we recently completed construction of a 30-mile pipeline to add a direct connection from Midland to our pipeline that flows from the Permian Basin to Cushing.

Tom Long: As a result, we are now able to transport approximately 100,000 barrels per day of crude oil from our terminals in midland taxes to our terminal and cushing Oklahoma.

Speaker Change: For a brief update around Power Generation Opportunities.

Tom Long: With forecasted AI and data center growth creating rising electrical needs and the necessity for grid reliability becoming increasingly important. It is clear that natural gas will place significant role in helping meet this demand.

Tom Long: We have an energy transfers extensive interstate and interstate natural gas pipeline footprint. We are the best position to capitalize on the anticipated rise in natural gas demand for AI data centers.

Tom Long: Natural Gas Power Plants, an industrial and onshore manufacturing for decades to come.

Tom Long: We have never seen this level of activity from a demand, pull, standpoint and these opportunities are truly spread across our natural gas footprint from Arizona to Florida and from Texas to Michigan.

Tom Long: We currently serve gas-bired power plants in 15 states with approximately 185 plants served via direct or indirect connections throughout these states. And our opportunities have only increased since our last call.

Tom Long: We have had requests to connect to approximately 45 power plants.

Tom Long: that we do not currently serve in 11 states that an aggregate could consume gas loads up to 6 BCF per day.

Tom Long: In addition, we have had requests from over 40 prospective data centers in 10 states. These data centers in aggregate could consume gas loads up to 10 BCF per day. Some of these may be behind the electric meter for reliability purposes.

Tom Long: Many of these developers are still working to determine optimal locations and are seeking information on pipeline proximity and calls to connect.

Tom Long: In addition to support our operations and increase system reliability for energy transfer and our customers in Texas, we have started construction of a 10-megawatt natural gas-bired electric generation facilities.

Tom Long: The first of these facilities is expected to be in service in the first quarter of next year. With the remainder expected to be in service throughout 2025 and 2026.

Tom Long: We also continue to make progress on the development of several other growth projects.

Tom Long: including our Lone Star Piped Optimizations, Warrior, Blue Marlin Offshore Oil Project, Lake Charles, Ellen G, a Carbon Capture and Sequestration Project with Capture Boy.

Tom Long: and Blue ammonia hubs at Lake Charles and Naterland. We look forward to providing more updates on these projects as customer discussions advance and we bring them closer FID.

Tom Long: We're looking at e-biddaw guidance.

Tom Long: We continue to expect 224 adjusted EBITDA to be between 15.3 billion to 15.5 billion dollars.

Tom Long: Our results reflect the strength of our assets in the benefit of having a diverse geographic footprint and multiple product offerings.

Tom Long: We remain excited about our business and the demand for these products and our services, both domestic and internationally.

Tom Long: We have seen a wide range of estimates for new power demand and the broad consensus suggests that natural gas fuel power demand will increase significantly in the future.

Tom Long: We are already seeing increasing power needs across several of our natural gas pipelines driven by AI, data center and power plant growth.

Tom Long: We believe that energy transfer is one of the best position to companies in the industry to help meet this demand.

Tom Long: We also continue to maintain a strong liquidity position with a balance sheet that allows the flexibility to fund organic growth opportunities while also further reducing our leverage. Maintaining our targeted distribution growth rate and increasing equity returns to our unit holders.

Tom Long: This now concludes our prepared remarks. Operator, please open the lineup for our first question.

Speaker Change: Thank you very much, as a reminder to ask a question you may press star and one on your telephone keypad.

Speaker Change: If you are using a speaker phone, please pick up your hand set before pressing the keys.

Speaker Change: Class, the withdraw your question, you may press star then too. At this time, we will pause momentarily to assemble our roster.

Tom Long: Today's first question comes from Jeremy Tonet with JP Morgan. Please go ahead.

Tom Long: I could have to knew.

Speaker Change: Hey Jeremy.

Tom Long: Hey Victor

Tom Long: Thanks.

Tom Long: This slide five as you wait out here seems pretty interesting and thank you for all the details on the call. 45-plant 6-BCF number of other demand pull sounds pretty sizable here. And so granted that there's a lot uncertain at this point still but when do you think this could start entering the plan?

Tom Long: How could this impact the EAT growth outlook in how much operating leverage do you see the system having to this trend?

Tom Long: Hey Jeremy, this is Mackie. You know, certainly a question we anticipated. We've heard for four years how we're transitioning out of fossil fuels and very clearly we're going in a different direction.

Tom Long: Even the liberals have figured out that we're transitioning into more natural gas and more natural gas liquids. So we feel very fortunate that the partnership looking at our assets throughout the United States.

Tom Long: We can benefit with our footprint as described on the page that you referenced. So we've been chasing every possible power plant or large.

Tom Long: gas consumer on any of our pipelines.

Tom Long: This is kind of just a follow-up to that with this all of a sudden rush to build data centers and additional power plants. So we're way ahead of the curve. We are very excited about the opportunities that this is going to create for our partnership throughout multiple states in the south and through the Midwest.

Tom Long: with our ability to move large volumes of these pipelines and our access to our own storage for immediate delivery to power plants where those are...

Tom Long: Services are necessary. We just are very excited about the future we.

Speaker Change: And Tom's prepared remark, we showed we're chasing like 16 BCF, do we expect to get that? No.

Speaker Change: positions are within two or three miles of our pipeline. It's almost like they had already come to us first saying we're the most optimal places to our assets, whether they're close to cities or close to our assets.

Tom Long: our storage facility, so we're real excited about where most of these data centers and power plants are going in close proximity to our system, and our team is well prepared and down the road in a lot of negotiations to take advantage of those opportunities.

Speaker Change: What type of expansions do you see off the system going forward and, you know, how could that impact, I guess, your growth capex outlook going forward within your capital allocation parameters?

Speaker Change: East Coast and Florida is just enormous and it's going up by the day because of population and everything else. And so we do have an open season out there. We have a tremendous response, a lot of interest. The forward curve from kind of Perryville area to Florida are enormous.

Speaker Change: So, we're very excited about that. It's way premature on kind of timing of how that will go and the capital involved, but we do see an opportunity there, and we think there's a real possibility we'd be a part of that growth.

Speaker Change: Got it. And just one last quick one if I could. It seemed like Diamondback was talking a bit about your partnership on their call recently here and just wondering, you know, what that means for Permian Egress as you see it. Seems like Warrior, they outlined quite the case for the need there. Just wondering, do you see this being a sooner rather than later event with an FID here?

Speaker Change: Yeah, yeah, I know I said on the last call that I'd be disappointed if we hadn't didn't announce it We're certainly not on this call going to announce FID, but I won't say we're disappointed. We've made tremendous progress

Speaker Change: Producer push to a certain degree, but it's also a market pull. So it's both directions needed

Tom Long: I'm trying to describe this, most of y'all probably know our system well, but if you think about energy transfer's intrastate system in Texas, it's almost like a hand.

Tom Long: that extends out of the Fort Worth Basin, where we have a pipeline, 36-inch going to northeast Texas, connected to multiple 42-inch pipes. We have two 42-inches going to Carthage for our intrastate markets, as well as interstate pipelines there. We also have two of our own pipelines.

Tom Long: We have a 42-inch that goes down to southeast.

Tom Long: County of Fort Arthur, Texas.

Tom Long: where we are tied to interstate pipelines as well as Golden Pass and SEMPRA.

Tom Long: Just a lot of upside there and then of course 42 and 36 that ultimately goes to Katy and the Houston Ship Channel and of course we have pipelines, our Houston Pipeline System that goes to Oglebilce. So we're

Tom Long: so uniquely set up to take advantage of offering the most flexibility to all of these markets. But what we're missing is years ago when we built the first, second, third.

Tom Long: We're using all these pipes, but we've got capacity that's unutilized, and so Warrior is exciting in that it's going to be a great project for us.

Tom Long: But it's also going to benefit from this underutilized capacity to go to all these points I just described. And so we hope to be to FID if it's not days in the coming weeks.

Tom Long: We actually have already locked in an option to purchase steel, so we know that price for the majority of the steel. We feel good about that.

Tom Long: It's an important project for us and we do intend to get it to the finish line.

Speaker Change: Got it. That's great to hear. Sounds like a lot of operating leverage across the system. Thank you for that. I'll leave it there.

Speaker Change: Thank you. The next question comes from Jean Ann Salisbury with Bank of America. Please go ahead.

Speaker Change: Hi, with the lifting of the LNG Permit Band, swimming possibly more eminent, can you remind us of the status of Lake Tarls on EPC contracts, etc.

Speaker Change: We do have a lot of momentum. We hope to announce some significant new markets that we've signed up by the end of the year. We've got a good EPC contract.

Speaker Change: You know executed and we're very optimistic that what happened yesterday is going to really help that and many other parts of our Our business to move forward. So yes, we're very bullish on getting LNG to the finish line

Speaker Change: Thank you. And then one more on slide five. Can you comment on the potential to expand transwestern to the west? Could you do that with just compression or would it be a pretty significant looping project to meet that demand?

Speaker Change: Yeah, what a great question. Everybody's kind of focused on going east.

Speaker Change: You know, there's it's

Speaker Change: It's probably likely there's going to be a need going west.

Speaker Change: From an efficiency standpoint, the volumes going, we're pretty maxed out when you look at kind of how the contracts are structured, where our compression is. We can't move a whole lot more, but we certainly think there's some potential for projects to move more gas to the west at some point.

Speaker Change: Great, I'll leave it there. Thanks.

Speaker Change: Manav, could your line be muted?

Manav: Hi, sorry about that. It's been a quarter since you completed the acquisition of WTG and I'm just trying to understand how is that integration going, do the assets meet your expectations and also could you provide us an update on the SunJV, how are things progressing over there?

Manav: Yeah, this is Mackie again. Gosh, you know, WTG, what a great acquisition. We're so excited about it.

Manav: And like I said, we're so bullish. We have an incredible amount of just high quality acreage, hundreds of thousands of acres dedicated to those assets. And on top of that, we have hundreds of thousands of acres that are top leased.

Manav: feeding into our

Manav: We're very excited about what that acquisition is going to do for our partnership.

Manav: And then jumping over to Sunoco, I don't know how many of you guys follow them, but listen to their call this morning.

Speaker Change: a much bigger way in the midstream business.

Speaker Change: and what a perfect fit.

Speaker Change: Coincidentally, we just didn't have a big presence in Howard County and Dawson and some of those counties where the New Star assets were, so it was just a perfect situation to form a JV.

Speaker Change: where we can offer a really good service to those producers.

Speaker Change: more than two, this is one of those situations. We've already identified numerous blending opportunities.

Speaker Change: And Sunoco's already great partners with us. They're partners on the JC Nolan line, moving diesel from Houston to the Permian Basin. And so we look forward to growing this partnership with them and excited to be a part of it.

Speaker Change: Thank you for a detailed response. I'll

Speaker Change: Thank you. The next question comes from Teresa Chen with Barclays. Please go ahead.

Teresa Chen: on the data center and natural gas infrastructure theme feeding that demand. I think one question is of magnitude, how much of the 16 BCFs per day that you will eventually realize, but another question would be one of returns.

Teresa Chen: Can you talk about how those types of projects, the returns, could potentially compare to what's in your existing backlog today, and just the competitive dynamics that have developed given the incremental competition from many peers?

Mackie: You bet. This is Mackie again.

Mackie: Yeah, I guess the way we'd answer that question is we don't look at it any differently, you know, we've got

Mackie: IRR rate return hurdles that we look to meet on all of our projects, that makes sense. We also look for other synergistic revenues that are tied to our projects. But as far as the competitive aspect to your question, gosh, we sit in a great spot.

Teresa Chen: If you could just look at where we're looking at some of these significant data centers, especially in the Dallas-Fort Worth area, there's just nobody that can provide the service that we can for the price that we can. We've got big diameter pipes, especially if we can get water to the finish line, that's going to be a huge influx of water.

Teresa Chen: of the Permian Basin supply. We have

Teresa Chen: unparalleled ability to move gas around the state from our storage facilities. We have massive storage and ability to increase our storage.

Teresa Chen: in the DFW area, as well as down around Houston. So, yes, there's going to be a lot of competition. As I said earlier, do we expect to get 16 BCF? No.

Teresa Chen: We do expect to get our fair share and in Texas a considerable part of that as well as we were optimistic in other states and so we we think we will Look to achieve the same return hurdles that we do on all of our projects And and we're quite confident that we'll be able to do that on a pretty significant volume

Speaker Change: Got it. And in terms of spending for this year, it looks like your growth capital budget decreased by $200 million, even though there's a new bullet point within Midstream, the new Delaware processing plant. So how have you added a project, decreased spending? What are the moving parts there, please?

Speaker Change: There's a couple of buckets really when we're looking at that total cost decrease.

Speaker Change: First of all, we've got a number of projects that are coming in at lower costs here. I think the EMC team is doing a great job there on getting stuff constructed, but we do have some reduced costs.

Speaker Change: Secondly, we have several projects, well we're always adding stuff, we have several, we've either reduced scopes or had outright cancellations, really due to return hurdles not being met and we're being disciplined on those. And then third, there are some smaller amounts that have been pushed out and deferred in the next year.

Speaker Change: Thank you so much.

Speaker Change: Thank you. The next question comes from Keith Stanley with Wolf Research. Please go ahead.

Keith Stanley: When when would the full 250,000 barrels a day of capacity be online and then can you just remind us how contracted the facility is and how much spot exposure you might have to the ARB spread?

Mackie: You bet. This is Mackie again.

Speaker Change: the ethylene part of it, but for the most part...

Speaker Change: We expect it to be fully contracted.

Speaker Change: Typically, these aren't 7- to 10-year agreements, they're 3- to 5-year agreements.

Speaker Change: We not only expect to be fully contracted, the international demand for ethane and LPG continues to grow through the roof.

Speaker Change: with all the PDHs built throughout the world, especially in China.

Speaker Change: Thank you. Second question, just the guidance for the year on EBITDA was maintained. The high end of the range would imply that EBITDA would be down quarter over quarter in Q4. Are there any headwinds to be mindful of for Q4 besides the the insurance gain item in midstream?

Speaker Change: The short answer is no.

Speaker Change: and guidance numbers we put out there, so here's the two items that I would put back at you. Number one, we don't have anything baked in for optimization that could possibly occur during the quarter.

Speaker Change: So we'll see how, as we get through the end of December, what may present itself. But the second item is really around the natural gas spreads across Texas.

Speaker Change: And right now we're staying pretty conservative as we look out. But differing views based upon how those spreads move up and down. And they can be pretty volatile.

Speaker Change: But even if you look at the month of October, you can see they stayed pretty strong. So, once again, that's another upside. So if you take those two items in, you can see that we would...

Speaker Change: We'll clearly be at the top end of that range, depending on what view you have.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question is from Gabe Maureen with Mizuho. Please go ahead.

Gabe Maureen: How things stand in the queue, whether you think you'll be announcing new stuff, and the extent you feel you need to kind of get ahead of the curve here in announcing plants for 26.

Speaker Change: Yeah, this is Mackie again. Yeah, we've already announced, of course, Badger, that's under construction, will be online next year. We just brought on Red Lake 3, kind of getting that lined out as we as we speak.

Speaker Change: We're still in the process of increasing our capacity in Red Bluff.

Speaker Change: Pay attention or worry about what others are announcing. We're just worried about what we've contracted and staying ahead of that. And we have a consistent pipeline of what we've already announced and what we see in the future.

Speaker Change: with the just phenomenal continued growth out of the Permian Basin that just keeps giving. And then with the new Barnett and Woodford type plays that are kind of being discovered in the Central Basin, we just continue to be, I guess, very fortunate to have such a big asset base in that basin.

Speaker Change: in volumes in places like the Hainesville that may have been impacted by dry gas prices.

Speaker Change: Yeah, let me try to answer that now. I don't do a very good job. Tom will tell me anyway. But, you know, it's funny. We always feel very fortunate when we look at our assets because we are by far the most diversified pipeline company in the U.S., by far.

Speaker Change: And so if our crew divisions hurt a little bit, it seems like our NGLs picks up, vice versa. And it was interesting as we were looking at these numbers preparing for this and really over the last.

Speaker Change: Even within our pipeline segments, if you look at, you just referred to, you know, some residue areas, if you, lean residue areas.

Speaker Change: If you look at, for example, our interstate pipelines, yes, we were down significantly. I think it was around 900,000 a day on Tiger and Rover together.

Speaker Change: But then you look at panhandle and you look at trunk lining, we're up over 1.1 BCF. So even embedded in our pipeline segments, we have offsetting.

Speaker Change: Gains that will offset some tough times so where we have more of our lean gas to come residue gas that comes from our rich

Speaker Change: There's enormous reserves that we all know in the Haynesville. We have no worries whatsoever that Tiger and Gulf Fund for the future will begin to grow again and remain full for many years to come, a lot of that going further downstream. So we feel very hedged.

Speaker Change: I guess is the word on the way our pipelines are set up and where we struggle a little bit or where our producers struggle a little bit, we're making it up in other areas of our pipeline business.

Speaker Change: Thanks, Mackie.

Speaker Change: Thank you. The next question comes from

Speaker Change: Thanks. Good afternoon, everyone.

Speaker Change: I wanted to go back to the slide five with all the growing demand that you're seeing on the natural gas side.

Speaker Change: I guess, given all this percolating gas demand, how does that fit in with your CapEx spending framework of, I think, $2-3 billion per year? Do you think that, given all these opportunities, that could possibly trend higher over time?

Speaker Change: Good question. I think, you know, as we've, you know, we've discussed the two to three billion dollars. You know, if you look at our, if you look at the slides we put out recently, you know, we've called it illustrative, but we have started talking about a two and a half to three and a half billion dollar run rate, and that's really just.

Speaker Change: The result of just getting bigger as a company and bigger, more opportunities and number of acquisitions we've done recently that have added to the footprint.

Speaker Change: But, you know, and the additional cash flow that clearly supports a capital spend like that. But even within that, as we look at and we talk about some of these bigger projects that we're looking at, such as a warrior, you know, the spend on those can be lumpy as they work. And so...

Speaker Change: Even though it's kind of an illustrative framework, we can be below or above that in any given year based on timing.

Speaker Change: Great, thanks for that. And then I just wanted to ask on slide 7, you list the Sabina One pipeline as a proposed project. I'm wondering if you could talk about the scope of that project and where you are in the process. Thanks.

Speaker Change: Yeah Michael, this is Mackie. We bought the Sabine assets a while back.

Speaker Change: So being a two, we will bring on service first quarter of next year, excited about that. We anticipated it.

Speaker Change: That's a natural gasoline project that we're very excited about, and what came with that asset was also Sabina One, which gets us across the ship channel over to some crackers.

Speaker Change: And we're chasing a number of opportunities there, so we've still got some work to do to fully benefit from what that pipeline can offer our partnership, but we're excited about what's happening on Sabina 2 and the revenues that will start flowing in the first quarter of next year.

Speaker Change: Thank you.

Speaker Change: Thank you. The next question comes from Zach Van Everen with TPH. Please go ahead.

Speaker Change: Hi all, thanks for taking my question. Just one on the Permian. We saw Matterhorn come online recently and it's been flowing about call it 1.5 BCF a day. I was curious if when that came online you guys saw a production jump on the gas side on your Permian system or do we think most of that gas flowing right now is just shifting from other pipes?

Speaker Change: It's a great question. In fact, we didn't even know there was that much gas flowing on it. That's news to us. We thought it was significantly less than that.

Speaker Change: For example, WTG, we...

Speaker Change: Gotcha, and then maybe going back to warrior, you know, it sounds like you're very close interesting that you note that

Speaker Change: You know, based on...

Speaker Change: conversations and contracting. Do you have an idea of what that mix will be and then is there a possibility that some of this gas connects into that South Mississippi project from Carthage and goes all the way over to that market?

Mackie: This is Mackie again. Yeah, I guess we wouldn't get to the specifics exactly where all that's going. I guess I would answer your question this way. It's weighted a little bit heavier toward market pull than it is on producer push, but a lot of our customers will have the option. For example, if they're taking their gas to Carthage, yes, they'll have the ability to go through our Gulf Run or Tiger system into a project that we're looking at from Perryville East. So it certainly could potentially feed that, but right now our customers are kind of pulling in different directions going east.

Mackie: And we'll fill up a lot of our assets, both intrastate and interstate.

Speaker Change: Makes sense. Perfect. Well, thanks for the time.

Speaker Change: Thank you. The next question comes from John McKee with Goldman Sachs. Please go ahead.

John McKee: Hey, guys. Thanks for the time. I wanted to maybe, again, just go back to –

Speaker Change: Yeah, I can answer that.

John McKee: There are so many projects that are out there, so many data centers and so many power plants, even unrelated to data centers, that we're chasing. It's probably a fair statement that we can move quicker and other companies can move quicker in Texas.

John McKee: when looking at some of these other states. However, if you look at Arizona...

Speaker Change: and prices to some of those projects, and as I mentioned earlier, Texas, we have a little bit better ability to feed some of that out of our storage facilities, which some of these power plants are really going to be, that support the data centers, are really going to be concrete units. They're going to be pulling off the grid.

Speaker Change: and then pulling gas if the grid goes down.

Speaker Change: But kind of a long-winded answer to, we agree with you that probably these opportunities will move a little bit quicker in Texas, but gosh, there's a lot of companies chasing all over our assets, and some of them may come quicker than we realize today.

Speaker Change: Permian NGL position in terms of, you know, what your capacity is going to be versus what you guys can flow from your own plants. Thanks.

Speaker Change: Yeah, great question. You know, we're in the process of expanding our cross-haul capacity on our Lone Star NGL line as we speak, and that should be complete, I believe, sometime middle of next year.

Speaker Change: and we're in good shape.

Speaker Change: with what we've already signed up and what we're anticipating from WTG, but clearly over the next two or three years, if we see the volumes continue to grow, we will be looking at

Speaker Change: Whether it's adding additional pumps or some type of pipeline looping, because at some point we will exceed the capacity, which we never dreamed would come so quickly years ago when we built all these 24 and 30-inch pipes. But right now we're sitting pretty good, at least for the next two or three years, to accommodate the contracts that we have today and what we kind of foresee.

Speaker Change: on our assets over the next year or two.

Speaker Change: Thanks for your time.

Speaker Change: Thank you. This concludes our question and answer session. I would now like to turn the call back to Tom Long for closing remarks.

Speaker Change: Before we do that, this is Matthew McQuick. I was hoping somebody would ask a question about...

Speaker Change: There are probably people in this room who are uncomfortable that I'm talking right now. We had questions on an earlier call about the election and I don't know what you guys think about it, but gosh, what an incredible, you know, refreshing.

Speaker Change: shocking result over the last 24 hours. You know, this industry has gone through a lot over the last four years, and not only is it this administration that has sensationalized and has

Speaker Change: misinformed and has, you know, through climate change, fear-mongering, has really tried to influence Americans.

Speaker Change: And it's incredibly refreshing to see what happened 24 hours ago, that Americans have woken up, and at least the majority of Americans, more than half, recognize what was happening.

Speaker Change: And, you know, with this country we have started with the Constitution, the greatest document ever built to start a country.

Speaker Change: And we have laws, and I believe that that's what this election...

Speaker Change: is saying to the world and to this country is that the majority of Americans still believe in our country. They still believe that we should have law and order. They still believe that if you want to come to this country, it's a simple process. You just go through the legal process, and you can enter. But when you have an administration that is, you know, for all...

Speaker Change: you know, practical purposes, doing everything they can to allow tens of millions of people to come into this country over the last four years.

Speaker Change: When many of them probably are coming in are good people that just want the American dream, but look what's come with them. Look at all the drugs and the gangs and everything, and they're doing it for one reason, for political power.

Speaker Change: And just how insane and how sick is that, that one of our parties is so, you know, enraged for political power, they're willing to...

Speaker Change: Great safety issues for our country. So anyway.

Speaker Change: reasonable, not onerous regulation.

Speaker Change: that can be done in a matter of a few years instead of years and hundreds if not billions of dollars.

Speaker Change: When you get them in line, we're asking that the agencies quit trying to bully companies and allow the projects that have permits to go forward.

Speaker Change: I mean, there are statutes that require permits to be done with certain periods of time that aren't being honored, that are being ignored by these agencies. So we are so excited about what's happened in the last 24 days. We're excited for this country.

Speaker Change: We're excited for...

Speaker Change: the world, really, for the international market that needs our LNG.

Speaker Change: in the undeveloped world that's developing that needs our LPG. So, what an incredible turn of events.

Speaker Change: of what's happening, and especially for our partnership.

Speaker Change: We were talking this morning, you know, we've been blessed and fortunate over the last year with Kelsey's leadership and

Speaker Change: We're just in such a wonderful spot, but we believe in what happened yesterday.

Speaker Change: Energy transfer has an incredible future for the next three or four years and many years to come so We're very grateful and thankful and you know God is good. You know things happen, and it's time to heal our land and get back to where this all started years ago

Speaker Change: Thank y'all for joining us. We look forward to talking to you. Bye-bye.

Speaker Change: The conference is now concluded. Thank

Speaker Change: [music]

Speaker Change: A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by

Speaker Change: A film by A film by A film by A film by A film by A film by A film by A film by A film by A film by

Speaker Change: Thank you for watching!

Speaker Change: Thank you for watching!

Speaker Change: Thank you for watching!

Speaker Change: [music]

Speaker Change: Oh, it's a long, long time I've been waiting for you I've been waiting for you I've been waiting for you I've been waiting for you Come on, see you tonight Oh, it's a long, long time I've been waiting for you I've been waiting for you

Speaker Change: Hello and welcome to the Energy Transfer 3rd Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode.

Speaker Change: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question, you may press star, then 1 on your telephone keypad, and to withdraw from the queue, you may press star, then 2.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: I would now like to hand the call to Tom Long. Please go ahead.

Tom Long: Thank you operator and good afternoon everyone and welcome to the energy transfer third quarter 2024 earnings call.

Speaker Change: I'm also joined today by Mackie McCree and other members of the senior management team who are going to be able to help answer your questions after our prepared remarks.

Speaker Change: Hopefully you saw the press release we issued earlier this afternoon as a reminder our earnings release contains a thorough MD&A that goes through the segment results in detail and we encourage everyone to look at the release.

Speaker Change: as well as the slides posted to our website to gain a full understanding of the quarter and our growth opportunities.

Speaker Change: These statements are based upon our current beliefs as well as certain assumptions and information currently available to us, and are discussed in more detail in our Form 10-Q for the quarter ended September 30, 2024, which we expect to file tomorrow, November 7.

Speaker Change: I'll also refer to Adjusted EBITDA and Distributable Cash Flow, or DCF.

Speaker Change: both of which are non-GAAP financial measures. You'll find a reconciliation of our non-GAAP measures on our website.

Speaker Change: Let's start with the financial results. For the third quarter of 2024, we generated a just-to-debit die of $3.96 billion, compared to $3.54 billion for the third quarter of 2023.

Speaker Change: We had record volumes through our crude oil, midstream gathering, and NGL pipelines, as well as through our NGL fractionators. In addition, we saw strong crude and NGL exports during the quarter and increased volumes through our refined products pipelines.

Speaker Change: DCF, attributable to the partners of energy transfer as adjusted, was $1.99 billion, consistent with the third quarter of last year.

Speaker Change: And for the first nine months of 2024, we spent approximately $1.7 billion organic growth capital primarily in the midstream and NGL and refined product segments, excluding Sun and USA Compression CapEx.

Speaker Change: which were offset by lower gains from the optimization of hedged NGL inventory as we recognized over 100 million dollars in gains in the third quarter of last year compared to 30 million dollars this year.

Speaker Change: For midstream, adjusted EBITDA was $816 million compared to $631 million for the third quarter of 2023.

Speaker Change: The increase was primarily due to higher volumes in the Permian Basin and Eagleford, as well as the addition of the Crestwood and WTG assets in November 2023 and July 2024, respectively.

Speaker Change: In addition, during the quarter, we recognized $70 million in proceeds from a one-time business interruption claim.

Speaker Change: For the crude oil segment, adjusted EBITDA was $768 million compared to $706 million for the third quarter of 2023.

Speaker Change: The increase was primarily due to record crude oil transportation throughput, higher crude oil exports.

Speaker Change: which were up 49%, the recently formed Permian Joint Venture with Sun, as well as the acquisition of the Crestwood and WTG assets. Excluding these acquisitions, crude oil transportation throughput on our base business increased 4%.

Speaker Change: For the interstate natural gas segment, adjusted EBITDA was $460 million compared to $491 million for the third quarter of 2023.

Speaker Change: During the quarter, we saw higher demand on pebble, trunkline, and gulf run. This was offset by lower IT utilization in dry gas areas due to the lower gas prices and weaker spreads.

Speaker Change: Additionally, we had higher operating expenses primarily due to a one-time benefit recorded in the third quarter of 2023 that reduced operating expenses and increased maintenance project costs.

Speaker Change: And for the intrastate natural gas segment, adjusted EBITDA was $329 million compared to $244 million in the third quarter of last year. The increase was primarily due to approximately $100 million of increased gains related to pipeline optimization opportunities.

Speaker Change: Turning to our recently completed acquisition of WTG, which enhances our Permian Basin operations and downstream businesses.

Speaker Change: Integration of the combined assets is underway and we have recently approved several projects that are expected to enhance reliability, reduce losses, and improve the overall efficiencies of the system for our customers.

Speaker Change: Also in July, Energy Transfer and Sunoco LP announced the formation of a joint venture combining their respective crude oil and produced water gathering assets in the Permian Basin.

Speaker Change: We are making good progress on integrating the combined systems and are executing on synergy and growth opportunities that will drive additional value while expanding our market and service offerings for our customers.

Speaker Change: Now turning to our 2024 Organic Growth Capital Guidance and our growth projects, we now expect 2024 growth capital expenditures to be approximately 2.9 billion dollars, which will be spent primarily in the NGL and refined products and midstream segments.

Speaker Change: At our needle and terminal, construction of the expansions to our NGL export capacity continues to progress, and the project remains on schedule for an anticipated in-service for the initial phase in mid-2025.

Speaker Change: at Mt. Bellevue.

Speaker Change: As mentioned on our last call, we have approved our 9th Fractionator, which will have a design capacity of 165,000 barrels per day and is expected to be in service in Q4 of 2026.

Speaker Change: This will bring our total fractionation capacity at Mont Bellevue to more than 1.3 million barrels per day.

Speaker Change: Taking a look at our Permian processing expansions, we recently completed the 50 million cubic foot per day upgrade to our Orla East processing plant.

Speaker Change: And construction continues on upgrades to three other processing facilities, which will add incremental processing capacity in West Texas of approximately 150 million cubic feet per day.

Speaker Change: Additionally, construction of the 200 million cubic feet per day badger processing plant in the Permian Basin is underway. As a reminder, this plant, which is expected to be in service in mid-2025, will utilize an idle plant that is being relocated to the Delaware Basin.

Speaker Change: Looking at our crude assets, we recently completed construction of a 30-mile pipeline to add a direct connection from Midland to our pipeline that flows from the Permian Basin to Cushing.

Speaker Change: As a result, we are now able to transport approximately 100,000 barrels per day of crude oil from our terminals in Midland, Texas to our terminal in Cushing, Oklahoma.

Speaker Change: for a brief update around power generation opportunities.

Speaker Change: With forecasted AI and data center growth creating rising electrical needs and the necessity for grid reliability becoming increasingly important, it is clear that natural gas will play a significant role in helping meet this demand.

Speaker Change: Given energy transfer's extensive interstate and interstate natural gas pipeline footprint, we are the best position to capitalize on the anticipated rise in natural gas demand

Speaker Change: for AI data centers.

Speaker Change: natural gas power plants, and industrial and onshore manufacturing for decades to come.

Speaker Change: We have never seen this level of activity from a demand-pull standpoint, and these opportunities are truly spread across our natural gas footprint from Arizona to Florida and from Texas to Michigan.

Speaker Change: We currently serve gas-fired power plants in 15 states, with approximately 185 plants served via direct or indirect connections throughout these states. And our opportunities have only increased since our last call.

Speaker Change: We have had requests to connect to approximately 45 power plants.

Speaker Change: that we do not currently serve in 11 states that in aggregate could consume gas loads up to 6 BCF per day. In addition, we have had requests from over 40 prospective data centers in 10 states.

Speaker Change: These data centers, in aggregate, could consume gas loads up to 10 BCF per day. Some of these may be behind the electric meter for reliability purposes.

Speaker Change: Many of these developers are still working to determine optimal locations and are seeking information on pipeline proximity and costs to connect.

Speaker Change: In addition to support our own operations and increase system reliability for energy transfer and our customers in Texas, we have started construction of eight 10-megawatt natural gas-fired electric generation facilities.

Speaker Change: We also continue to make progress on the development of several other growth projects.

Speaker Change: and Blue Ammonia Hubs at Lake Charles and Nederland. We look forward to providing more updates on these projects as customer discussions advance and we bring them closer to FID.

Speaker Change: Looking at EBIDTA guidance.

Speaker Change: We continue to expect 2024 Adjusted EBITDA to be between $15.3 billion to $15.5 billion. Our results reflect the strength of our assets and the benefit of having a diverse geographic footprint and multiple product offerings.

Speaker Change: We remain excited about our business and the demand for these products and our services, both domestically and internationally.

Speaker Change: We have seen a wide range of estimates for new power demand, and the broad consensus suggests that natural gas fuel power demand will increase significantly in the future.

Speaker Change: We are already seeing increasing power needs across several of our natural gas pipelines driven by AI, data center, and power plant growth.

Speaker Change: Given our extensive natural gas pipeline network, particularly in Texas and Oklahoma, we believe that Energy Transfer is one of the best positioned companies in the industry to help meet this demand.

Speaker Change: We also continue to maintain a strong liquidity position with a balance sheet that allows the flexibility to fund organic growth opportunities while also further reducing our leverage, maintaining our targeted distribution growth rate, and increasing equity returns to our unit holders.

Speaker Change: This now concludes our prepared remarks. Operator, please open the line up for our first question.

Speaker Change: Today's first question comes from Jeremy Tonant with JP Morgan. Please go ahead.

Jeremy Tonant: Hi, good afternoon.

Speaker Change: Hey, Jeremy.

Jeremy Tonant: Hey, this uh...

Speaker Change: Thanks. This slide 5, as you laid out here, seems pretty interesting, and thank you for all the details on the call. 45.6 BCF and a number of other demand pull sounds pretty sizable here. And so, granted that there's a lot uncertain at this point still, but when do you think this could start entering the plan?

Jeremy Tonant: Hey Jeremy, this is Mackie. Certainly a question we anticipated. We've heard for four years how we're transitioning out of fossil fuels and very clearly we're going in a different direction.

Mackie McCree: Even the liberals have figured out that we're transitioning into more natural gas and more natural gas liquids. So we feel very fortunate as a partnership looking at our assets throughout the United States.

Jeremy Tonant: gas consumer on any of our pipelines.

Jeremy Tonant: rush to build data centers and additional power plants, so we're way ahead of the curve. We are very excited about the opportunities that this is going to create for our partnership throughout multiple states in the South and through the Midwest.

Jeremy Tonant: services are necessary. We just are very excited about the future.

Jeremy Tonant: positions are within two or three miles of our pipeline. It's almost like they had already come to us first saying, where are the most optimal places to our assets, whether they're close to cities or close to our assets.

Jeremy Tonant: our storage facility, so we're really excited about where most of these data centers and power plants are going in close proximity to our system, and our team is well prepared and down the road in a lot of negotiations to take advantage of those opportunities.

Speaker Change: What type of expansions do you see off the system going forward and, you know, how could that impact, I guess, your growth, CapEx outlook going forward within your capital allocation parameters?

Speaker Change: So, we're very excited about that. It's way premature on kind of timing of how that will go and the capital involved, but we do see an opportunity there, and we think there's a real possibility we'll be a part of that growth.

Speaker Change: Got it. And just one last quick one if I could. It seemed like Diamondback was talking a bit about your partnership on their call recently here and just wondering, you know, what that means for Permian Egress as you see it. It seems like Warrior, they outlined quite the case for the need there. Just wondering, do you see this being a sooner rather than later event with an FID here?

Speaker Change: Yeah, I know I said on the last call that I'd be disappointed if we didn't announce it. We're certainly not on this call going to announce FID, but I won't say we're disappointed. We've made tremendous progress.

Speaker Change: Producer push to a certain degree, but it's also a market pull. So it's both directions needed

Speaker Change: A pipeline, 36-inch, going to Northeast Texas, connected to multiple 42-inch pipes. We had two 42-inches going to Carthage for our intrastate markets as well as interstate pipelines there. We also had two of our own pipelines.

Speaker Change: We have a 42 inch that goes down to southeast.

Speaker Change: County of Fort Arthur, Texas.

Speaker Change: Just a lot of upside there in the course 42 and 36.

Speaker Change: ultimately goes to Katie.

Speaker Change: We're using all these pipes, but we've got capacity that's unutilized, and so Warrior is exciting in that it's going to be a great project for us.

Speaker Change: But it's also going to benefit from this underutilized capacity to go to all these points I just described. And so we hope to be to FID, if it's not days, in the coming weeks.

Speaker Change: We actually have already locked in an option to purchase steel, so we know that price for the majority of the steel. We feel good about that. And we're kind of structuring this where we anticipate announcing it when we get to FID, if we do. And it will be a good project with a good rate of return.

Speaker Change: So we'll have the ability to add compression in the future, a significant amount, to move 700,000, 800,000 more than what we anticipated initially. And the reason that's important, that's what will feed all these new power plants that are coming on, all these new data centers that are happening. So

Speaker Change: It's an important project for us and we do intend to get it to the finish line.

Speaker Change: Got it. That's great to hear. Sounds like a lot of operating leverage across the system. Thank you for that. I'll leave it there.

Speaker Change: Thank you. The next question comes from Jean Ann Salisbury with Bank of America. Please go ahead.

Speaker Change: Hi, with the lifting of the LNG permit ban seeming possibly more imminent, can you just remind us of the status of Lake Charles on EPC contracts, etc.?

Speaker Change: We do have a lot of momentum. We hope to announce some significant new markets that we've signed up by the end of the year. We've got a good EPC contract.

Speaker Change: executed and we're very optimistic that what happened yesterday is going to really help that and many other parts of our business to move forward. So yes, we're very bullish on getting LNG to the finish line.

Speaker Change: Thank you. And then one more on slide five. Can you comment on the potential to expand transwestern to the west? Could you do that with just compression or would it be a pretty significant looping project to meet that demand?

Speaker Change: Yeah, what a great question. Everybody's kind of focused on going east.

Speaker Change: You know, there's it's

Speaker Change: I'll kind of leave it at that for this point, but to answer your question more directly, not a lot we can do to significantly increase, from an efficiency standpoint, the volumes going. We're pretty maxed out when you look at kind of how the contracts are structured, where our compression is. We can't move a whole lot more, but we certainly think there's some potential for projects to move more gas to the west at some point.

Speaker Change: Great, I'll leave it there. Thanks.

Speaker Change: Subs by www.zeoranger.co.uk

Speaker Change: Thank you. The next question is from Manav Gupta with UBS. Please go ahead.

Speaker Change: Manav, could your line be muted?

Manav Gupta: Hi, sorry about that. It's been a quarter since you completed the acquisition of WTG and I'm just trying to understand how is that integration going? Do the assets meet your expectations and also could you provide us an update on the SunJV, how are things progressing over there?

Mackie McCree: Yeah, this is Mackie again. Gosh, you know, WTG, what a great acquisition. We're so excited about it.

Mackie McCree: And like I said, we're so bullish. We have an incredible amount of just high quality acreage, hundreds of thousands of acres dedicated to those assets. And on top of that, we have hundreds of thousands of acres that are top leased.

Mackie McCree: That right now are going to somebody else but in future years will come to us So what a what a great asset just stand alone from a GMP perspective but then when you add on to what it's going to do for our NGL and downstream business there as well as feeding into our

Mackie McCree: We're very excited about what that acquisition is going to do for our partnership.

Mackie McCree: And then jumping over to Sunoco, I don't know how many of you guys followed them, but listen to their call this morning.

Manav Gupta: a much bigger way in the midstream business, and what a perfect fit.