Operator: Good day, and welcome to the Energy Transfer Q3 2026 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Tom Long, CEO. Please go ahead.
Tom Long: Thank you, operator. Good morning, everyone, and welcome to the Energy Transfer Q3 2026 earnings call. I am joined today by Mackie McCrea, Dylan Bramhall, and other members of the senior management team who are here to help answer your questions after our prepared remarks. Hopefully, you saw the press release we issued earlier this morning. As a reminder, our earnings release contains an update to guidance and a thorough MD&A that goes through the segment results. We encourage everyone to review the release and slides on our website for full understanding of the quarter and our growth opportunities. We will be making forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.
Tom Long: 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 30 September 2026, which we expect to file later this week. I will also refer to adjusted EBITDA and distributable cash flow, or DCF, both of which are non-GAAP financial measures. You will find a reconciliation of our non-GAAP measures on our website. Let us start today by going over our financial results. For Q3 2026, we generated adjusted EBITDA of approximately $5 billion compared to approximately $3.8 billion for Q3 of last year. DCF attributable to the partners of ET, as adjusted, was approximately $2.5 billion compared to approximately $1.9 billion for Q3 2025.
Tom Long: Strong performances across all our business segments supported these results, including record intrastate transportation volumes following Hugh Brinson Phase I entering into service and record midstream gathering volumes. For the first nine months of 2026, we spent approximately $3.9 billion on organic growth capital, excluding Sun and USA Compression CapEx.
Tom Long: Turning to our 2026 adjusted EBITDA guidance, for the third consecutive quarter, we captured meaningful upside from market volatility, reflecting the quality of our diversified asset footprint. As a result, we expect our full year adjusted EBITDA to range between $19.7 and 19.9 billion, which is up approximately $850 million at the midpoint compared to our guidance range provided on our last quarter's earning call. Our revised 2026 guidance reflected outperformance in the base business and the benefit of approximately $285 million of previously disputed natural gas purchases with a downstream customer recognized in Q4 of this year.
Tom Long: We have not included any benefit from the Vaquero acquisition, which is expected to close in the mid-Q4 of this year. Now turning to organic growth capital guidance, we expect our 2026 organic growth capital to be between $5.4 billion and $5.6 billion, excluding SUN and USAC. As we advance certain projects toward FID and refine the timing of others, we currently expect 2027 growth CapEx to be approximately $7 billion. We will provide formal growth capital guidance on our next quarter's call. The majority of these growth projects are contracted under long-term commitments and are expected to generate mid-teen returns, resulting in considerable earnings growth over the next decade plus. Now let's turn to our results by segment for Q3, and I'll start with NGL and refined products.
Tom Long: Adjusted EBITDA was approximately $1.2 billion compared to approximately $1.1 billion for Q3 2025. These results were driven by increased exports out of our Nederland and Marcus Hook terminals, as well as higher throughput at our Mont Belvieu fractionators. Results for Q3 also included an increase of approximately $177 million in marketing margin from favorable market conditions, including increased premiums on both domestic and export sales of NGLs and higher volatility. Approximately $100 million of this gain is expected to be offset over the next two quarters as the derivative losses are realized. For Midstream, adjusted EBITDA was approximately $864 million compared to approximately $751 million for Q3 2025.
Tom Long: This was primarily driven by record volumes in the Permian Basin, which increased approximately 8% as a result of new plants being placed in service and improved plant utilization, as well as volume growth in several other regions. In addition, we saw an approximately $70 million increase due to higher NGL and natural gas prices compared to last year. For our Crude Oil segment, adjusted EBITDA was approximately $871 million compared to approximately $746 million for Q3 2025. During the quarter, we saw continued growth across several of our crude oil pipelines and gathering systems. These results also included an increase related to favorable market conditions, primarily stronger spreads and increased volatility. Approximately $100 million of this gain is expected to be offset in Q4 as the derivative losses are realized.
Tom Long: In our Interstate Natural Gas segment, adjusted EBITDA was approximately $500 million compared to approximately $431 million for Q3 2025. The primary driver of these results was higher contracted volumes and utilization on several of our pipelines, including Transwestern, Rover, Panhandle Eastern, and Florida Gas Transmission. For our Intrastate Natural Gas segment, adjusted EBITDA was approximately $346 million compared to approximately $230 million in Q3 2025. This was primarily due to an increase of approximately $82 million of gross margin as volumes continue to ramp up on phase one of the Hugh Brinson Pipeline. The $82 million is inclusive of optimization volumes that flowed on the pipeline during the quarter. We recently announced plans to acquire Vaquero Midstream for approximately $2.625 billion in cash and ET common units.
Tom Long: The acquisition is expected to be immediately accretive to distributable cash flow per common unit and represents an approximately 8.5x multiple on 2027 estimated EBITDA. We anticipate this drops to below 7x by 2029 as we increase utilization of existing processing capacity. The Piñero assets include approximately 300 miles of pipeline in Loving, Reeves, Ward, and Winkler counties, as well as three natural gas processing plants with a total capacity of approximately 675 million cubic feet per day. The acquisition will expand and enhance Energy Transfer's integrated natural gas gathering and processing network and add additional volumes to our downstream natural gas and NGL infrastructure. The system is supported by high-quality customers with an average contract life of approximately 10 years and will become an integral part of our extensive pipeline network in the Delaware Basin.
Tom Long: We expect the acquisition to close in Q4 of this year, subject to regulatory approval and customary closing conditions. Now turning to our major growth project updates, starting with natural gas. Phase 1 of the Hugh Brinson Pipeline is in service with a capacity of 1.5 BCF per day. We expect phase 2, which includes additional downstream compression, to be in service in Q1 2027, increasing the expected capacity to over 2.3 BCF per day. The full project is still expected to come in under budget. We continue to see interest from customers seeking to increase commitments and new customers looking for Permian egress. On the last call, we announced an agreement with Crusoe to construct natural gas supply facilities supporting its previously announced 900-megawatt expansion at its AI factory campus in Abilene, Texas.
Tom Long: In furtherance of this agreement, we have now executed a 250,000 MMBtu per day, 10-year firm transportation agreement with an A-rated hyperscaler. Next, we are making good progress on our Desert Southwest Pipeline project. We expect to file the formal certificate application with FERC in Q4. We continue to see interest in contracting additional volumes on the pipe, which includes multiple electric utilities. Our teams remain engaged with key stakeholders along the pipeline route. Last quarter, we announced Transwestern's Springerville Lateral. This quarter, we added the construction of the Cholla Lateral project, an approximately 30-mile, 20-inch pipeline with an expected capacity of approximately 100,000 MCF per day that will extend south from ET's existing Transwestern pipeline to a local utility.
Tom Long: The new lateral will enable the conversion of a coal-fired power plant to a natural gas service and is expected to be in service in Q1 2029. Growth capital associated with this project is expected to be fully reimbursable. To support the growing markets in the southeastern US, earlier this month, we reached positive FID on the 215-mile South Mississippi Pipeline project, which will extend from a connection near the Perryville hub to an interconnect on the FGT pipeline in southern Mississippi. We have secured long-term, 20-year demand-based firm transportation agreements to support construction of a 36-inch pipeline with a capacity of approximately 1.2 BCF per day at an expected cost of approximately $1.6 billion. Energy Transfer will likely be a 51% owner and operator of this project, with the remaining ownership coming from shippers or their affiliates.
Tom Long: A binding open season is currently underway to solicit additional customer commitments. We are discussing, and in some cases negotiating, with multiple shippers. Final pipeline sizing and capacity will be determined after the open season. This project, which is expected to be in service in 2030, will give shippers greater access to natural gas from multiple US producing basins to markets in the rapidly growing southeastern United States. In the Northeast, on our Rover pipeline system, we recently completed the addition of compression and metering facilities to support a 15-year transportation agreement with a Marcellus producer. The agreement, which added 250,000 MMBtu per day of firm natural gas volumes to the pipeline system, began 1 November.
Tom Long: Looking at new power plant connections in Oklahoma, the first 3 connections serving new power plant loads are in service, and we expect the fourth to be in service in Q4 2028. We recently executed an agreement to provide natural gas service to a fifth power plant in Oklahoma. In total, these will provide approximately 400,000 MCF per day of new demand growth. In addition, we are in negotiations to serve another approximately 100,000 MCF per day of new power plant demand in Oklahoma. In Missouri, we have executed 2 agreements to provide a total of approximately 150,000 MCF per day of firm natural gas transportation service from our Mississippi River Transmission pipeline to 2 new power plants being constructed. To support these agreements, we will add pipeline and metering facilities.
Tom Long: Growth capital associated with the construction of these facilities will be fully reimbursed, and the agreements are expected to become effective in late 2027 and mid-2028. Since the beginning of 2025, we have executed over 9.5 million MMBtu per day of agreements with demand pull customers, including hyperscalers, data centers, and power plants, to provide volumes associated with our natural gas business throughout Texas, Oklahoma, Arkansas, Louisiana, Ohio, Illinois, and many other states along our pipeline network. We are in advanced negotiations to provide customers with significant additional volumes along our pipeline network and remain confident in our ability to reach FID on many more such opportunities. Now, looking at our Permian processing expansions, we placed the Mustang Draw II plant into service in October and expect the volumes to ramp up through the H1 of next year.
Tom Long: We also recently reached positive FID on Bear II, a 200,000 MCF per day cryogenic processing plant in the Delaware Basin, adjacent to our existing Bear processing plant. Bear II is expected to cost approximately $225 million and be in service in Q3 2027. Now, looking at our growth opportunities for our liquids business. As a result of the significant growth in the Permian, as well as the Vaquero acquisition, we reached positive FID on our 10th fractionator at Mont Belvieu. Frac X is expected to have a capacity of 200,000 barrels per day and be in service in the H1 of 2029, which will bring our total capacity at Mont Belvieu to approximately 1.6 million barrels per day. In addition, we expect volumes on Frac IX to ramp up quickly after its anticipated completion later this year.
Tom Long: At our Nederland terminal, we previously announced a 240,000 barrel per day ethane export expansion to meet additional customer demand. We have since elected to upsize this to approximately 300,000 barrels per day, which will be achieved through optimization of our Mont Belvieu to Nederland pipeline corridor. This project will also provide an additional 55,000 barrels per day of LPG capacity and 2 additional NGL ship docks. We still expect the project to be placed in service in stages beginning in 2028, with the docks expected in mid-2029. At Marcus Hook, the ethane expansion project is on schedule for anticipated completion in the H2 2027. This is now expected to increase our ethane export capacity from the terminal to approximately 100,000 barrels per day.
Tom Long: We have executed agreements with existing customers to offtake approximately 75% of this capacity for terms extending out through late 2030s and early 2040s. Growing NGL demand across India, South Korea, China, and Europe supports continued growth at our Nederland and Marcus Hook export terminals. Our strong base business performance and volume growth within each of our segments, along with a third straight quarter of significant upside from market volatility, drove solid earnings results. Phase 1 of Hugh Brinson Pipeline began contributing in a meaningful way during the Q3, and this contribution will increase as we bring on phase 2. In addition, Mustang Draw II is also now up and running.
Tom Long: Frac IX is expected to go into service later this year, and the pending Vaquero acquisition, which adds to our Delaware Basin footprint, is expected to be immediately accretive to DCF per unit upon its closing later this year. Looking ahead, the growing demand from power generation and NGL markets continue to create new growth opportunities, evidenced by our newly announced expansions to our processing capacity in the Permian, our natural gas pipeline business expansion, and the upsize to our planned ethane export expansion project. With a large slate of growth projects under construction, plus the newly announced projects, we continue to be very well-positioned for growth in 2027 and beyond. We remain focused on capital discipline, as well as project execution and completing these projects safely, on time, and on budget. In summary, the quality and connectivity of our assets give us a clear line of sight to growth.
Tom Long: From the wellhead to the export dock, our integrated system lets us serve every major supply basin and every major demand center, and we believe this is a unique and stable competitive advantage. This concludes our prepared remarks. Operator, please open the line up for our first question.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Theresa Chen with Barclays. Please go ahead.
Theresa Chen: Good morning, and thank you for taking my questions. First, I would like to dive deeper into the South Mississippi project in light of today's FID. Given recent commercial progress for transmission expansions to support the ripening power load across the Southeast, can you elaborate on the addressable demand underpinning this project, any downstream implications, and more broadly, how will the South Mississippi project strategically enhance your natural gas footprint?
Mackie McCrea: Good morning, Theresa. This is Mackie. What a great opening question, because I think this project shows the power and the ability of Energy Transfer to perform like no others. The reason I say that is, what South Mississippi does for us, it connects all of our pipelines that come into the Perryville area down to FGT, which continues to grow. What it gives the markets, the shippers, the opportunity to do is to reach out to all the basins. With the uncertainty in the future of where prices will go and where volumes will go, some of our customers on this project alone are reaching out to the Permian Basin, Haynesville, and even up in the Marcellus Utica. They have taken long-term space out of there. So, it really shows what we can do for customers throughout the US, but especially in the Southeast.
Mackie McCrea: We are very excited about that project. To elaborate a little deeper on your question, we continue to see constant growth in the Southeast, especially Florida and other areas. So, we are in the middle of phase 9, as everybody knows. We are working on phase 10. We already have customers we are talking to. But one thing that really is not very evident, that we have tremendous capability, when we connect this pipeline to Florida, to move large volumes backhaul into the heart of Louisiana. As everybody knows, there are a lot of LNG projects being completed and built there. There are also some massive projects that are consuming large amounts of natural gas, and this will be a great project to help support those types of markets. So, it is an exciting project. Our team did a great job getting to the finish line, and it fits in perfectly with our assets.
Theresa Chen: Thank you so much for that detailed answer, Mackie. Looking at your current growth CapEx in the mid-fives this year, and then stepping up to about $7 billion next year, plus a significant amount of projects under development from here, how are you thinking about the magnitude of run rate CapEx over the next few years beyond 2027?
Dylan Bramhall: Yeah, Theresa, this is Dylan. Thanks for the question there. I think as we look out, 2027 right now looks to be one of our larger years definitely we've had in the past. As we look out further, it's probably expected that we're going to be north of $5 billion in that area for the next several years here with this great backlog we have. I think 2027 definitely looks like probably the high watermark as we see it right now.
Operator: Thank you. The next question is from Jeremy Tonet with JPMorgan. Please go ahead.
Jeremy Tonet: Hi. Good morning.
Dylan Bramhall: Good morning.
Tom Long: Morning, Jeremy.
Jeremy Tonet: Just wanted to look forward into 2027 a little bit here. 2026 enjoyed a lot of nice tailwinds across a number of the business lines. When we think about, I guess, 2027, how do you see those, I guess, continuing? Do you still expect some of those tailwinds to be as strong, or how should we think about that, particularly as it relates to when you introduce the 2027 guidance?
Mackie McCrea: Yes, I can start, and Dylan or Adam can add onto it. As Tom explained in the opening remarks, all these projects that we're building are so exciting to bring on. One of the reasons are, other than long projects take years, a lot of these projects are coming on as we speak this year, as we talked about, and throughout 2027 with Frac IX ramping up, with our cryos ramping up, another cryo coming on in the Q3 of next year, is that these projects are filling up quickly. The demand for our products and what we do, especially natural gas, is going to continue to grow exponentially, and we're trying to stay ahead of that with these projects. That'll be a lot of the driver behind this, is how quickly volumes bring value to these assets as we complete them.
Dylan Bramhall: Yeah, Jeremy, just to talk about this year relative to next year a little bit. We do not want to front-run guidance here, but if you recall, when we start out the year, we talk about the optimization opportunities we have. We generally have a couple hundred, 200 to 400 million in our plan as we go into the year, and generally, we have outperformed that. I think if you look historically, that number is probably more in the 600 to 700 million range a year. But we do not always know exactly where it is coming from. We have an asset base and a group of dedicated employees that are set up to optimize around these situations, and this year has presented more opportunities than most. We are looking at something probably closer to $1.5 billion across this year.
Dylan Bramhall: When we come out with our guidance, we will take all this into account, and more to come on that.
Jeremy Tonet: Got it. That is helpful. Thank you for that. Then, maybe just coming back to the natural gas logistics side, some new developments there. If I just take a step back and I think about new power demand, I was wondering if you might be able to just frame for us how you think of the opportunity set going forward, be it CapEx, or in how much Adjusted EBITDA that could generate, or any parameters, I guess, as far as you see opportunities set in front of you right now for more natural gas logistics projects.
Mackie McCrea: Hey, Jeremy, this is Mackie again. Yeah, I think it is pretty evident when you look at our pipeline network throughout the country how well-positioned we are. We have made a lot of announcements, working on a lot of other projects to deliver gas to power plants, and we are so extremely well-positioned. Then you look at how we have the capability, as I mentioned earlier, to move volumes from different basins to different markets. A great example of the benefit of that is, of course, South Mississippi Pipeline, but also Hugh Brinson. I mean, that project was built to move large volumes out of the Permian Basin east, and now we are seeing a growing demand to move volumes out of the Carthage-Katy area deeper in Texas in a backhaul basis through Hugh Brinson. So, there is just so much upside.
Mackie McCrea: When you look at, because of how well-positioned we are and where a lot of these power plants and a lot of these power plants that are backing data centers, where they are located, are immaterial from the standpoint of capital to get to them. These are, in many cases, 2, 3, 4 miles away, maybe 18 miles away. So, low capital to benefit from existing assets, existing capacity, I mean, on our assets, especially in a backhaul basis. A little bit down the road here, the next 2 or 3 years, with all these power plants being built in Texas and throughout the country, with LNG taking off, on any given day, molecules will be moving multiple directions through our pipelines. We will be charging for all those different directions.
Mackie McCrea: But in effect, a lot of it being consumed of where it is being delivered and consumed of where we receive it. So, our vast intrastate and interstate pipeline network is going to create a lot of potential upside in the future.
Jeremy Tonet: Got it. Thank you for that.
Mackie McCrea: Yep.
Operator: The next question is from Keith Stanley with Wolfe Research. Please go ahead.
Keith Stanley: Hi. Good morning. Wanted to follow up on the South Mississippi project connectivity. Assuming this would pull some gas off Tiger or Gulf Run, how full are those pipelines today, and do you think you would need to expand them or other assets to accommodate the project? Just wondering holistically if this is going to drive other opportunities upstream of the South Mississippi project.
Mackie McCrea: Yeah, the answer to that, Keith, is absolutely. It will drive other upstream opportunities. As I mentioned, one of the contracts that is supporting South Mississippi has signed a long-term deal starting in 2029 for capacity out of the Marcellus Utica down our Panhandle Trunkline. We have more capacity. All of our assets, we can always loop or add compression if necessary, but right now, we have plenty of capacity in our existing system to move gas out of Texas, out of Oklahoma, into the Perryville area. We also have the ability, of course, to extend further upstream to the Permian Basin as well. So, certainly those will bring other opportunities, but we already are so well-positioned with the capacity we have today to provide transportation services to feed that new project.
Keith Stanley: Great. Thanks for that. Second one, Dylan, I wanted to follow up on the $1.5 billion of optimization benefits for this year versus the $200 million to $400 million kind of baseline. Is that excess earnings purely spread and volatility benefits, or is the $1.5 billion also including benefiting simply from higher commodity prices that could very well continue into next year at this point?
Dylan Bramhall: Yeah, Keith, it is all the above there, and it really crosses every segment. We are sitting here taking a look, staring down at my sheet here. We are looking at just the drivers from the increase in guidance from last quarter to this quarter, and it is every single segment in our business that is up. It is the higher prices, it is the spreads, it is the volatility. It is also just additional volumes across assets too that are driven by some of the global volatility that we are seeing. So, it is a lot of great tailwinds right now, and I think you are correct. Some of this could very well extend into 2027.
Adam Arthur: Keith, this is Adam. Just one thing I would add to that and point out is, while yes, we have certainly benefited from that volatility, there is also definitely an underlying pull globally. We recently were on a trip here to Asia and heard firsthand that we have been the stable source of supply in this storm that has happened globally. We expect that business and that pull to continue and support the assets for longer at higher rates.
Keith Stanley: Thanks very much.
Operator: The next question is from Julien Dumoulin-Smith with Jefferies. Please go ahead.
Julien Dumoulin-Smith: Hey, good morning, guys. Thanks for the time. I appreciate it. Maybe just following up a little bit on the South Mississippi focus, Mackie. Can you talk a little bit about what is going on with Entergy? They obviously made a parallel announcement yesterday. Can you perhaps tether those two together in as much as folks are trying to triangulate how you think about this? Then more to the point, how do you think about the opportunity above and beyond what you are seeing here? In as much as if you read the line with Entergy, they seem to be talking about even more here, if you will. Ultimately, what this means for a 42-inch configuration.
Mackie McCrea: Yeah, you bet, Julien. First of all, probably won't talk about specific customers. As you know, we've done a huge deal with Entergy up in North Louisiana to provide transportation service off of Tiger for a facility up there, a power plant up there, and we continue to be in conversation with them everywhere where we can provide services to them. But wouldn't talk specifically about them on this project. However, as I mentioned earlier, this project is so significant to our partnership because the growing demand along the Gulf Coast is exponential. And with our ability to move more volumes east, down South Mississippi and east through Florida Gas, as I mentioned earlier, it's a really important point.
Mackie McCrea: We have the ability to backhaul 2 BCF from South Mississippi deep into Louisiana to markets that are growing, to markets that are there today, and significant markets that are planned and actually being developed as we speak. So, South Mississippi is going to be a great conduit to help other projects downstream and other markets downstream on FGT.
Julien Dumoulin-Smith: Awesome. Excellent. Thank you very much. Maybe just getting a little bit more into the numbers here, maybe there's more, Dylan. Obviously, you raised the guidance meaningfully here, $900 million, pretty solid. Can you speak a little bit more to the drivers? Obviously, there's a few different pieces here. You got marketing earnings in Q3 that waned a little bit, but how do you think about the guide-up being tied more to the H1 of this year? Obviously, there's Vaquero in there, but how do you think about the different, the stacked pieces here, if you will?
Dylan Bramhall: Yeah, so I'll focus on really what we're seeing here and then the drive up from the last call to this call here. Like I said earlier, it's every segment. So, Midstream, we've seen it's not just higher commodity prices, it's better operational performance, it's better runtime in the Permian, which has resulted in more efficient operations and more volumes through our facilities. It's the Crude segment where we've benefited not just from the increased volatility and the spreads, but also from additional volume across our assets. NGL has been a great performer here, similar to Crude, the better volatility, better spreads, more volume, still seeing great demand across the docks for our products and strong rates there.
Dylan Bramhall: The intrastate pipelines, we got Hugh Brinson online right now. This segment will also benefit from the resolution of the dispute with the customer that we are going to recognize here in Q4. Inter and other both contributed. They are both kind of the steady eddy segments, but even both of those are up as we just continue to see strong demand across all the assets. Then finally, Sunoco, can't forget the job they are doing there right now, and really outperformance across all their segments. Really strong refining earnings, but also all their other segments as well are really hitting on all cylinders. You put all that together, and it is a really large increase from the last call to this call here.
Dylan Bramhall: A lot of that is the Q3 performance, but we do still, as we are looking out at Q4, we see Q4 up from where we had it 3 months ago as well.
Julien Dumoulin-Smith: Yeah, it is pretty striking. Then lastly, just to sneak it in here, the lateral economics here in terms of incremental gas supply deals. Anything you would care to share about what that looks like prospectively? Obviously, it is de minimis CapEx. So, any leading indicators there of just how meaningful that could be? Is it kind of leverage your assets here, the operating leverage of your assets? If there is anything you care to share at this point.
Mackie McCrea: Yeah, you bet. This is Mackie again, and like I said, because of where all of our pipelines are and because of where a lot of these power plants are being built and data centers, et cetera, we are very fortunate. Even in the laterals that we are building off Transwestern or North End, both of those are nice projects for us, going to create some good upstream revenues. These are pipelines that are going to coal-fired plants that are being replaced with natural gas-fired generation, which is going to be a common theme as we go on. We are just so well-positioned there, and like I said earlier, throughout the country, to spend fairly immaterial dollars to connect large power plant loads.
Julien Dumoulin-Smith: Awesome, guys. Thank you.
Mackie McCrea: Thank you.
Operator: The next question is from Jean Salisbury with Bank of America. Please go ahead.
Jean Ann Salisbury: Hi. Good morning. There has been increased bullishness on Permian crude growth, partly because there have been so many Permian gas pipelines announced. I believe most of Energy Transfer's Permian crude volumes are traveling at spot rates. Do you see this Permian crude supply-demand balance tightening over the next few years, and would you seek to contract out more of this space? As a follow-up, what would you have to see in the basin to consider adding new crude pipeline capacity? Thanks.
Adam Arthur: Yeah. Hey, Jean. It's Adam. Great question. Yes, we definitely are expecting more growth. I would like to point out that as we see the GORs increasing, it's not surprising to us that we're seeing more gas pipelines added relative to crude egress. You're spot on on the amount of our capacity that's moving under spot rates. We took a view when we went through the re-contracting phase that the rates that the market was willing to pay were undervalued, and I think this year has been a great example of that being true. We will look to contract the pipes long-term, assuming that the values get to where we view them as appropriate. There's clearly a lot of value in these long-haul pipes.
Adam Arthur: I think we serve different markets than several of our competitor pipes, which also provides an incremental level of intrinsic value to our system. As far as looking to expand, I think there are several low-hanging fruit expansions that people like us and others in the industry can do. As people are signing up for contracts and rates are appreciating, we'll certainly look to those in the future.
Jean Ann Salisbury: Great. Thanks a lot.
Operator: The next question is from Gabe Moreen with Mizuho. Please go ahead.
Gabe Moreen: Hey. Good morning, everyone. Can you maybe just talk about the rationale for Vaquero versus some of the other G&P systems that have transacted in the Permian? I am just curious with the FIDing of Frac X, to what extent having Vaquero under your belt might have prompted that, and also timing on future Vaquero processing FIDs expansion?
Adam Arthur: Yeah. Really for us, Vaquero, it sits in a really great spot in our system. We are already very well-connected to Vaquero on all fronts, on the upstream front. We have taken advantage, and so have they, of utilizing each other's systems when we have maintenance and other events in the field, as well as being connected with the NGLs and other downstream products. So, the system really made a lot of sense to us as a very good quality bolt-on, and we expect to be able to grow volumes with our system with a bigger contract mix now with all those plants and further expansion there. Also, on the downstream side as it relates to Frac X, the Y-grade team as well as our upstream midstream team have done a really good job of bringing new volumes to the system and contracting our Y-grade system.
Adam Arthur: While Vaquero certainly helped with us make the decision on Frac X, it was not the only driver.
Gabe Moreen: Great. Thank you. Then maybe if I-
Dylan Bramhall: And Gabe, I was going to add to that too. When you think about Vaquero and you look at the multiple and the multiple coming down, that is just really filling up the processing capacity that is there. As far as thinking about synergies, we did not add the downstream in its synergies. It is a lot of volumes off these assets that are definitely helping support new capital projects going forward, like Frac X, where that obviously supported. But the economics that we have put out there as far as multiples is really just centered around the processing capacity there and bringing new volumes onto that system.
Gabe Moreen: Great. Thanks, Dylan. Maybe then I am going to ask a little bit about credit risk, particularly as it pertains to contracting for some of these data center demands. Can you talk about how you are evaluating that, how much you are scrutinizing different projects, maybe what sort of assurances you are asking for before you enter into projects? I know some of these projects are not the most capital-intensive, but I am just curious what the process might be there and whether that has been evolving.
Tom Long: Yeah. So we have a very robust credit process anytime we are looking at putting capital out there or spending money on new assets. That goes the same for these data center projects, even when it is smaller capital dollars on laterals. We are generally making sure that we are contracting through to an investment-grade counterparty, so that can take many different forms. I do not want to talk specifics on any customers, but generally, we are getting some form of parental guarantee for the contract value or a large portion of the contract value, so that we are protected upstairs. In the few cases where we have done something with non-investment-grade counterparties, generally several years support through an LC or a surety bond or some sort of credit enhancement like that to give us some protections in the event of any sort of insolvency.
Tom Long: We have always looked at it as a couple years gives us time to get re-contracted on the space then, as these assets are being built, they are all going to become very critical to the US infrastructure here for many years to come.
Gabe Moreen: Thanks, Tom.
Operator: Our last question comes from John Mackay with Goldman Sachs. Please go ahead.
John Mackay: Hey, team. Thank you for the time. I will just do one quick one. Obviously, elections today, not going to ask you to weigh in on that, but just be curious the tone from your customers you are hearing. Are they waiting on kind of today's outcomes to move forward with some projects, or said differently, depending on how, let us say, today goes, do you think you could see a pickup in contract announcements on the gas side? Thank you.
Mackie McCrea: Gosh, I guess we are all kind of looking at each other. This is Mackie. I do not really have conversations with customers around politics and how that might affect. Now, certainly there is some conversations around threats coming out of Iran and that type of thing that everybody in America is paying attention to, as well as us.
Mackie McCrea: But I am not aware of any conversations where there is discussions around exactly what will happen after today. I mean, you still have Trump as president regardless of what happens, so there is still going to be certainly support for our industry and for what we do for this country and for the rest of the world. But we try not to worry about those things. We support them. We are big encouragers of voting. Hopefully everyone on this call gets out and vote, very important. We will see how everything works out this evening.
Mackie McCrea: But either way, we will wake up tomorrow morning, and we are going to continue to grow and make this a great partnership for many years to come.
John Mackay: Thanks for the time, guys. Appreciate it.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Mackie McCrea for any closing remarks.
Mackie McCrea: Yeah. Thank you. Everybody is kind of looking, "Oh my gosh, what is he going to say?" But I will not be too long here. But I guess, Tom and I for years have talked about how great our employees are, and that is what makes us who we are. And as I look at Tom, I have really enjoyed working with him, a Co-CEO. He is calm, he is easygoing, he is smart, he is well-connected, he is very experienced, and I am kind of the opposite of all of that. And so it has been kind of a really good partnership. And I know him being the sole CEO starting in January is a great thing, and he will continue to lead this. I am very excited about that. He has got Dylan next to him.
Mackie McCrea: If Dylan's not the top CFO in our industry, he should be, because he's very talented, brought a lot of value to our partnership. He's put himself in a great team with Ashton, Troy, and Justin, just a great group running our financial and accounting departments. You've got Brad in tax, and Brad's probably the smartest guy in our company. I don't understand about half of what he says, so I have to get an interpreter on that. He's a very talented guy that brings a lot of value. I go to the commercial side. Adam Arthur, who's sitting next to me, I joke that he started cleaning bathrooms, I think, at Energy Transfer when he joined us.
Mackie McCrea: No, he came with a master's, and he came with an intent to learn and to do well, and he has really prospered. He's brought a lot of value to our NGL business, to our crude business, and now over a lot of our intrastate gas. I think the sky's the limit where he's going to go from a commercial standpoint in this partnership. He's put together great teams, our crude team with Christina and Tyler and everybody under them. It's just phenomenal. You spend time with those folks, like Tom and I do often, just a talented group that are extracting every bit of value they can out of our assets. You go to RB and the team he's built in our NGL group with Brian up in Philly and John and John and others in Houston.
Mackie McCrea: We've got incredibly smart people, very experienced people, likewise with our crude that really extract value, as you can see with all these NGL projects that we've done over the years and are continuing to build out. You go into Brian Beebe and his G&P. Everything starts at the wellhead. Once it comes out of that wellhead, that's where we start making money. Very important cog in our wheel, and he and Alex and Michael and Todd and everybody that's built our G&P. It's been really fun working with them, and I know they'll continue to do what they do for many years to come. On the interstate front, we have so many great projects going on, just in South Mississippi with Joey and Jimmy and Mike and their teams in Florida, and Steve and all his guys and folks.
Mackie McCrea: Just exciting what's going on in the interstate front. It's been so fun. You look on the M&A. The way Kelcy and we've run this partnership for years is we've got to balance our M&A with our organic growth, and we've kind of got out of balance off and on over the years. Right now, you can see we're turning pretty good on keeping that balance. With Chris and his ability to do deals with Clyde, Chris reaches out to everybody in this organization as he evaluates assets and companies. He's done such a great job. He looks at a lot of deals. We look at a lot of deals, and we don't win many of them, but the ones we do win turn out to be great acquisitions.
Mackie McCrea: There is other upside that we think we are going to get from those, and then there is always other upside synergies and revenues that we get that we do not anticipate. What a great asset Chris has been for our partnership. We have got an incredible legal team that we are fighters. We do not like fighting, but when we have people drilling holes in our pipe and chaining themselves to equipment and pouring sand in equipment, enough is enough. I think folks out there know that we will stand up for ourselves. We will stand up for our industry. I am very proud of our legal team and the jobs that they have done. Then you talk about our E&C. Commercial works very close with E&C, with Mike and Raj.
Mackie McCrea: They have got such great teams, and a great example of that is Hugh Brinson and Chris Hubard and what he has done to get Hugh Brinson built a lot earlier than we had anticipated, and then now he has jumped over to phase 9 on Florida and probably part of South Mississippi. You got Putch and his whole team out on DSW. It is just what an incredible E&C team that is bombarded with thousands of requests from our commercial teams every year, and they churn out all these costs that are so important to be accurate so that we can be competitive and keep our market share. I could go on and on, by the way, with our partnerships. It is incredible, as Tom and I say, who supports us and who makes us look good.
Mackie McCrea: We go to our with Bill and with Brent and with Lyndsay Hannah, they do such a great job communicating with you all, everybody on this phone, communicating internally with everybody inside. Even this prep for these quarterly calls, just the amount of work they put into this, it has been a pleasure. Once again, they make us look good, like I said. Then finally, going to you guys, to everybody on the phone and all the investors that have stuck with us for all these years. There were times when our coverage was not so great, and there were times when our leverage was a little bit higher than we wanted, and we had protesters, et cetera, et cetera, and you all stuck with us, especially a lot of you all.
Mackie McCrea: A lot that are on this phone that have been great, loyal investors and believers in who we are and what we have done, and we appreciate that very much. Then, going to Kelcy. I met Kelcy years ago. I think I interviewed with him for about 10 minutes. He told me to come back in 2 weeks, but I had not yet noticed where I was working as a landman. Then, he would tell me what the salary was, or they would. So I joined him, and then when he and Kelcy started, I am sorry. He and Ray started Energy Transfer, our first asset was a 10-inch, 150-mile pipeline in East Texas full of nitrogen. We tied a gathering system into it, tied it to TU, to TUFCO, and we took off from there. Oh, I am not forgetting something. Oh, yeah. Oh, my goodness. Yeah.
Mackie McCrea: Kind of important. I did not look at my notes. Probably the most important group, which is hard to say that, is our ops group. I actually had it on my deal. I was trying to speed up to get through this, but I should not have. Daniel, I will start with this. Start with Tom, and then Daniel. The most important thing is, yes, we want to run efficient systems. We want to run systems that are profitable. But the most important thing is safety, that our employees that come to work every day go home to their families every day, and that is the biggest emphasis we put. But after that, Daniel and his team have done an incredible job. Throughout the country, we have such great operating people at Marcus Hook, Mont Belvieu, and Nederland, throughout all of our terminals and pipelines throughout the country.
Mackie McCrea: It would take forever to give those people the credence. But also out in Permian, where we are most active, with Andrew and Chris and what they have done to not only continue to run assets we have over the years, but also to take new assets or assets that we have purchased recently and turn them into the ET standard of reliability. As we brought on new cryos, they have done a great job there, and they will continue to do that. Yes, they are such an important part. That is why I have a Co-Chief Executive Officer to remind me of the things I forget. Please keep doing that as I close out here. Anyway, with Kelcy and Ray buying the 10-inch, I think Kelcy is such a unique man. I mean, there is not many people like him with his aggressiveness, with his competitiveness, with his never-give-up attitude.
Mackie McCrea: A lot of that, my dad had a lot of that same thing. But my dad did not have this massive vision that I think most people do not have of where things can go. He may be one that goes, "I am not surprised where we are at today." Well, I am shocked where this partnership has gone. I have enjoyed this ride the whole way. I look at kind of summarizing this, our assets. Hands down, I am always puzzled by why we trade as poorly as we trade compared to our competitors. It makes no sense. You look at our intrastate, interstate pipeline network, unmatched by far by anybody in the industry. You look at our crude business, we move about 30% of every barrel that is produced through our pipe. We move about 25%, excuse me, of every gas molecule that is produced in the state through our assets.
Mackie McCrea: We are one of the biggest exporters of natural gas liquids. We export a lot of oil. I have tremendous amount of, I think it is 80 million barrels of oil storage, 80 million barrels of NGL storage. We have 240 BCF of gas storage. We are just so well-positioned. You combine that with what I started out this with our people, the best people in the industry. What works out is years like this. We are going to be steady growing for many years to come, but we are so well-positioned to capitalize with our assets and our people and opportunities on volatilities. If this year is an example of that, I do not know what is. The future is so great for Energy Transfer. The best is yet to come. I hate leaving. It is bittersweet.
Mackie McCrea: I'll certainly be the biggest cheerleader from the sidelines for this partnership. I hope that you all continue to believe like you should, because there's a lot of great things that are happening now that we'll be announcing in the next 6 to 12 months. I look forward to where this partnership's going. Appreciate everybody's support. Appreciate everybody's support. Thank you for this call. Feel free to reach out to Bill and team on questions, or Dylan. It's just been a real pleasure. Take care. Have a good day.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
