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Energy Transfer pushing ahead on Dakota Access expansion, bullish on litigation

Highlights

DAPL expansion completion slated for Q3 2021

Oral argument on DAPL litigation were held Nov. 4

Energy Transfer recorded $1.6 bil in impairment charges

Houston — Energy Transfer executives said Nov. 4 they still plan to expand the controversial Dakota Access crude pipeline in 2021 -- the same day that plaintiffs argued in a federal appeals court for shuttering the 570,000 b/d pipeline entirely.

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The Dallas pipeline operator is focusing on expanding the Bakken Shale's largest crude artery to about 750,000 b/d -- and then consider additional capacity growth -- by the end of September 2021. But the bullish growth plans for the three-year-old pipeline coincide with a legal fight simultaneously progressing in two federal courts. The US Court of Appeals for District of Columbia Circuit held a hearing for oral arguments on Nov. 4, while the US District Court for DC has deadlines for legal arguments and responses through Dec. 18.

"We don't envision or see a scenario where we take the pipeline out of service. We just don't think that's going to happen," said Chief Commercial Officer Mackie McCrea, who will become co-CEO in January, during an earnings call. "We're highly confident the pipeline is going to continue to operate and not be shut in."

The US Army Corps of Engineers is allowing the pipeline to operate without a key federal permit that was revoked earlier this year in federal court. The courts could rule -- late this year or in 2021 -- whether to require a more stringent environmental review for the permit and whether to shut down the pipeline in the interim. A previous court order to shutter the pipeline was reversed on appeal.

If the Corps of Engineers is operating under a White House run by former Vice President Joe Biden instead of President Donald Trump, then the environmental review could prove even tougher.

The court battle pits the Standing Rock Sioux Tribe and other plaintiffs against Energy Transfer and the Corps of Engineers in the effort to close the pipeline that stretches from North Dakota to Illinois.

Chief Financial Officer Thomas Long, who's the other incoming co-CEO, said he expects a ruling by the end of this year on whether the additional review is even needed.

The potential for the unprecedented closure of a relatively new and fully operational pipeline is being closely watched by the industry because of the potential precedent it could set, maybe putting other existing pipeline systems at risk.

The expansion project only requires the construction of new pumping stations and facilities throughout the route, but not new pipe. Final permitting approval was granted from Illinois in mid-October. Pre-construction activity has already begun.

Energy Transfer has planned to expand Dakota Access to 1.1 million b/d. But, with the coronavirus pandemic hurting crude demand, the expansion is taking a phased-in approach.

Money and projects

Although Energy Transfer reported solid cash flow, the pipeline firm recorded a $782 million net loss for the third quarter largely because of $1.6 billion in impairment charges from the declining values of pipeline assets. Energy Transfer had an $857 million profit during the same quarter last year.

Energy Transfer also sliced its 2020 capital budget another $100 million down to about $3.2 billion because of projects coming in under budget.

Apart from DAPL, Energy Transfer reiterated it plans to complete its Ted Collins crude pipeline expansion by the end of 2021 in order to better link its Houston Ship Channel and Nederland, Texas hubs.

Other construction projects are mostly focused on natural gas liquids. Energy Transfer is expanding the Mariner East NGL Pipeline in Pennsylvania and the Orbit ethane pipeline between Nederland and Mont Belvieu, Texas.

Largely because of the pandemic's impact on demand, Energy Transfer's quarterly crude oil transportation volumes fell 15% from last year down to 3.59 million b/d.

The firm's crude transportation and terminal revenues plunged 36% to $2.85 billion.

Overall quarterly revenues fell from $13.5 billion to just less than $10 billion.