Energy Transfer to cut spending this year by at least $400 million as prices plunge

Energy Transfer plans to cut spending on growth projects this year by at least $400 million as a plunge in commodity prices and market demand due in part to the coronavirus pandemic contributed to a first-quarter loss versus a year-ago gain, the company said Monday.

The operator of the Rover natural gas and Mariner East NGL pipelines in the US Northeast and developer of the proposed Lake Charles LNG export terminal in Louisiana has been hit hard like other midstream companies. In the months ahead, weakness in oil prices is expected to cause producers to continue to curtail drilling, resulting in short-term reductions in crude and associated gas volumes on its pipelines.

To address the current market environment, Energy Transfer is reducing capital spending to $3.6 billion for 2020, with another $300 million to $400 million of capital under review for potential further spending cuts during the year, the company said. Approximately 70% of the growth capital that Energy Transfer spends this year will be on projects that will be in service in 2020 or early 2021. The company is evaluating the trajectory of commodity prices and producer activity to determine if it will need to adjust its outlook further.

"We view it as unlikely we will add any major organic growth projects to our backlog for 2021," Chief Financial Officer Thomas Long said during a conference call with investors.

For the first quarter, Energy Transfer reported a loss attributable to partners of $855 million, or 32 cents a share, compared with a profit of $808 million, or 31 cents a share, in the same period in 2019. Revenue in the latest quarter fell 11% to $11.63 billion from $13.12 billion a year earlier.

On its intrastate pipelines, transported volumes of natural gas increased in the first quarter, primarily due to increased utilization of its Texas pipelines. Volumes on its interstate pipelines, however, decreased, primarily due to lower utilization of contracted capacity on its Panhandle and Trunkline pipelines. Rover also suffered from less favorable market conditions.

Energy Transfer has said it still plans to proceed with development of the export facility at Lake Charles LNG. Shell pulled out of its 50-50 joint venture with Energy Transfer in late March, saying it would not move forward with its equity investment due to difficult market conditions.

US developers of liquefaction capacity were struggling before the pandemic to secure sufficient commercial support to finance construction of their facilities, and those challenges have gotten more difficult since as international LNG prices have plunged and demand has weakened.

Sempra Energy recently delayed a final investment decision on its proposed Port Arthur LNG facility in Texas to 2021, while Cheniere Energy suggested it may put off FID on its midscale liquefaction expansion at its facility near Corpus Christi until next year as well. Tellurian said recently it is "very difficult to predict" when it will be able to take FID on its Driftwood LNG project in Louisiana.

Meanwhile, NextDecade warned investors Friday that market disruptions from the coronavirus pandemic could further delay a final investment decision for its Rio Grande LNG export terminal in Texas and harm the developer's ability to sustain its operations.

M&A OUTLOOK

After the Shell announcement, Energy Transfer said it was evaluating alternatives at Lake Charles LNG, including bringing in one or more equity partners and scaling back the project to two trains from three and reducing planned capacity to 11 million mt/year from 16.45 million mt/year.

During the investor call, CEO Kelcy Warren wouldn't rule out the possibility of an M&A opportunity, though Energy Transfer isn't interested in adding risk in the current market environment.

"It's all hands on deck right now to make sure our business is healthy and performing, but it is something we look at every day," Warren said. "We would not do anything that was not deleveraging. Then you look at the possibilities, it may or may not be there."