Energy Transfer Equity, L.P. (ETE)

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Energy Transfer Equity, L.P. (ETE)

Q2 2011 Earnings Conference Call

August 4, 2011 09:30 ET

Executives

Martin Salinas – Chief Financial Officer

Analysts

Darren Horowitz – Raymond James

Yves Siegel – Credit Suisse

Ross Payne – Wells Fargo

Helen Ryoo – Barclays Capital

Presentation

Operator

Good morning and welcome to the Energy Transfer Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the call over to your host for today Mr. Martin Salinas, Energy Transfer’s Chief Financial Officer. Please proceed, sir.

Martin Salinas – Chief Financial Officer

Thank you and good morning all. Thanks for joining us today. It has to be a very busy quarter for us and we have a lot to talk about so let’s jump right in. I’ll talk about providing an overview of the ETP and ETE’s financial results for the second quarter and give an update on our pending Southern Union acquisition along with some of our growth initiatives before opening the line for questions.

I’d also like to encourage you to get into our website to access the earnings releases we issued yesterday after the market close. As always during the call I’ll make forward-looking statements within the meaning of Section 21E of the SEC Act of 1934 based on our beliefs as well as certain assumptions and information available to us. As always, I’m joined by Kelcy, Mackie, John McReynolds and other members of our senior management team to answer your questions after our prepared remarks.

Let’s start by reviewing ETP’s second quarter 2011 results. And we’re pleased to report that adjusted EBITDA for the quarter was $388.1 million up approximately 15.6% in the second quarter of last year largely as a result of contributions from our Tiger and SEC pipeline plus the acquisition of LDH Energy's NGL assets, for Q&A Lone Star NGL. As you recall Tiger was placed in service in December of 2010 and SEC was placed in service in January of this year. Both pipelines have contractual ramp-ups of demand fees of the course of the year. So we expect to see continued growth in not only in the third quarter but also in the fourth quarter of this year.

I’d also like to remain everyone that year-over-year growth in our Intrastate segment was offset by the sales of NEP to ETE in May of last year which contributed $12.4 million of adjusted EBITDA to ETP in the second quarter of 2010. Adjusted EBITDA from our other segments as a group was more or less flat year-over-year as modest growth in our Intrastate transportation and Midstream segments was offset by similar decline in our retail propane segment. We also experienced distributable cash flow growth of $23.3 million with distributable cash flow for the quarter of $222.3 million compared to $200 million in the second quarter of last year.

From a distribution rate perspective ETP will pay its unit holders $89.38 or roughly $3.575 on an annualized basis per unit on August the 15th. And based on our how assets are performing the continued execution of placing assets in service not only on time but also within budget and increased distributable cash flows from these projects we’re confident that we’ll increase ETP’s distribution rate in the very near future.

So let’s look at our business segments and I’ll start with our Interstate business. Our Interstate operating income for the quarter was $135.7 million compared to $127.8 million in 2010 and was affected by several factors. First we experienced an increase in transportation fees of $2.9 million over the second quarter of last year due to demand fee increases offset by a decrease in fees earned on interruptible transportation services. The declines in interruptible volumes resulted from the weak basics differentials we continue to experience across Texas.

In addition, margins from sales of our natural gas and other activities increased $2.4 million in the second quarter of 2011, primarily reduced in increase in sales of NGLs offset by lower margins from system optimization activities. We also saw our storage margin recognized under fair value accounting increased $7.6 million primarily driven by unrealized gains on natural gas inventories during the quarter adjusting for non-cash gains and losses on derivatives and inventory between the two periods our storage margin actually decreased $10 million primarily due to lower withdrawal rates, tighter storage spreads this year compared to last year. And as it relates to our storage facilities we had just over 50% of storage capacity roughly 39.5 Bcf contracted under fixed-fee contracts with the remaining contract terms of one to three years. And as of June 30th we had approximately 38.5 Bcf in the ground for our own accounted Bammel for expected withdrawals during the 2011 and 2012 winter season.

Now looking at our Intersate Segment where we achieved operating income $ 49.8 million for the quarter as an increase of 17.6 million from second quarter of last year and was primarily driven by higher transportation revenues from our Tiger pipeline. And as I mentioned earlier we expect to see additional revenue increases from Tiger over the course of the year due to contracted demand fee ramp-ups.

In terms of volumes we saw an increase of 1.2 Bcf a day for the quarter again primarily driven by volume shift in the new Tiger pipeline offset by slightly lower volumes on the Transwestern Pipeline compared to the same period in the prior year. For FET, which is our 50:50 joint-venture with Kinder Morgan we recorded an equity in earnings at $5.2 million and received cash distributions of 8.6 million for the quarter. We also expect to these results increased during the remainder of 2011 and into 2012 as demand fees on FEP increased.

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