Energy Transfer Equity, L.P. (ETE)

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Energy Transfer Equity, L.P. (ETE)

Q3 2012 Earnings Call

November 8, 2012 9:30 am ET

Executives

Martin Salinas - Chief Financial Officer

Kelcy Warren - Chief Executive Officer

Mackie McCrea - President and Chief Operating Officer

Brian MacDonald - CEO, Sunoco

Analysts

Stephen Maresca - Morgan Stanley

Curt Launer - Deutsche Bank

Ted Durbin - Goldman Sachs

Darren Horowitz - Raymond James

Helen Ryoo - Barclays

Ethan Bellamy - Robert W. Baird

Presentation

Operator

Good morning, ladies and gentlemen and welcome to the Energy Transfer Third Quarter 2012 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and answer session. Please note this conference is being recorded.

I would now like to turn the call over to Mr. Martin Salinas, Chief Financial Officer. Mr. Salinas, you may begin.

Martin Salinas

Thank you, operator, and good morning everyone. Welcome to the Energy Transfer's third quarter 2012 earnings conference call. With me today are Kelcy, Mackie, John McReynolds, Tom Mason and other members of our management team who are available to help answer your questions after my prepared remarks. We also have with us today, Brian MacDonald and Bob Owens from Sunoco.

Today, I will start with a few comments about our recently closed acquisitions and formation of ETP HoldCo, as well as a status update on some of our other growth initiatives. We'll then start third quarter financial and operating results for ETP, ETE and Southern Union before taking your questions.

Our earnings releases, which were issued yesterday after the market closed, are available on our website and we intend to file our 10-Q later today. I'd also like to remind you that during this call, I will make forward-looking statements within the meaning of Section 21E of the SEC Act of 1934 based on our belief as well as certain assumptions and information available to us.

I'll also refer to adjusted EBITDA and distributable cash flow or DCF, which are non-GAAP financial measures. Reconciliations of net income to adjusted EBITDA and DCF are provided on our website for your reference.

With that, let's talk about our recent acquisition of Sunoco and the formation of ETP HoldCo. As you are aware on our services, we completed the completed the acquisition of Sunoco for roughly $2.6 billion in the cash and approximately $55 million ETP common units. Immediately following the acquisitions, ETP contributed Sunoco the ETP HoldCo a newly formed entity for a 40% equity interest and ETE contributed Southern Union to ETP HoldCo for a 60% equity interest.

Integration, I'd like point out prior to the formation of HoldCo, Sunoco's interest in Sunoco Logistics or SXL were transferred to ETP. As a result, ETP now owns the GP interest in IDRs of Sunoco Logistics and roughly 32% of Sunoco Logistics common units. With these transactions, we have positioned the partnership to better manage operations across our asset base and realize operating and cost synergies at both, Southern Union and Sunoco.

Now, our focus turns to the integrating and optimizing our portfolio of assets a process that is well underway. We have already identified more than $80 million of annual cost synergies at Southern Union and are exploring numerous commercial opportunities. We've also start the exercise of integration Sunoco into our system through an integration team comprised of members from both, Energy Transfer and Sunoco. And, while we are in the early phases of this process, we are confident we will realize meaningful synergies once the integration is completed.

As we look at our current organizational structure, we believe there will be opportunities for simplifications, such as transferring assets from HoldCo into an MLP structure and evaluating these possibilities, we will consider both tax subsequences and credit impact while ensuring transactions are accretive to our unit holders.

Now, I would like to briefly comment on our projects under construction in both, our Midstream and NGL segments each project will support growth in our distributable cash flow while continuing to diversify our business mix. In our Midstream segment, Phase II of our rich Eagle Ford mainline, and our Red River Gathering pipeline went to the service during the third quarter of 2012, and we expect our adjusted NGL pipeline and our Karnes County processing plant to go in service by December.

We also expect Lone Star's West Texas Gateway pipeline and our first 100,000 barrel a day Mont Belvieu fractionator to go in service in December ahead of our initial timeline. Additionally, Phase I of our Jackson County processing plant is also expected to come on line in the first quarter of 2013. And we are proceeding nicely on the second fractionator, which is now expected to be in service sometime in Q4 of 2013, also ahead of schedule.

Since the fourth quarter of 2010, we have announced more than $3 billion of growth projects primarily focused in the rich gas shale plays in Texas of which approximately $2 billion will be in service by year end. Once the full fleet of announced projects are in services, they are expected to contribute annual EBITDA of $400 million to $500 million when fully ramped up for the next couple of years.

Let's talk about the ETP's Q3 2012 results, where adjusted EBITDA was $482 million, up 19% from Q3 of last year. Distributable cash flow for the quarter was $340 million an increase of $73 million. And, for the third quarter of 2012, ETP will pay its unit holders [$0.89 to $0.38] or $3.575 on an annualized basis per unit on November the 14th to our unit holders of record as of November the 6th.

Read the rest of this transcript for free on seekingalpha.com