With merger, Energy Transfer maintains fossil fuel focus amid energy transition

The oil and gas industry will continue to thrive under the Build Back Better Act supported by the Biden administration, a top Energy Transfer LP executive said, even as the company makes allowances for the global transition to low-carbon energy.

Co-CEO Marshall McCrea said the oil and natural gas transportation company will review its corporate strategy once the U.S. Congress approves and budgets the legislation, but the executive mostly sees business as usual.

"We're in the fossil fuel business," McCrea told an analyst on the company's third-quarter earnings call Nov. 3. "We play an integral part in producing, transporting, fracking and exporting and also selling to the domestic markets the enormous amounts of energy that make the living standards as we have them here and around the world. And we are excited about our industry. We see a long future in this industry."

"Of course, we pay attention to any tax impacts [the legislation] may have on our partnership, but we don't really get all worried and caught up in that," McCrea said. "We'll deal with it when it comes out."

Energy Transfer is demonstrating its commitment to fossil fuels with the agreement to acquire Enable Midstream Partners. The deal "will provide increased scale in the Mid-Continent and Ark-La-Tex regions and improved connectivity for our natural gas and NGL transportation customers," co-CEO Tom Long said. The expanded connectivity and footprint would let the company pursue additional commercial opportunities, Long said.

Long said Energy Transfer expects the transaction to close before the end of 2021.

In an update on one of the last interstate natural gas pipeline projects to be completed in the U.S. — the Rover Pipeline LLC system that provides takeaway from the western edge of the Marcellus Shale — McCrea told an analyst that the project has been worth the legal and regulatory ordeals tied to its construction. "What a great project," McCrea said. "That's really turned out well for us."

"We saw the value of that pipeline increase even more so with the difficulty that we see in the — at least the near term, over the next two, three, four, five years — ... to get another interstate pipeline approved out of that area," McCrea said. The executive said Energy Transfer has approximately over 90% of the pipeline under long-term contracts on a month-to-month basis and is often selling capacity at tariff rates.

At the same time, Energy Transfer is pursuing projects in line with the energy transition. Long said the company is exploring opportunities for solar, wind and forestry carbon credit projects on its acreage in the Appalachian region.

"In particular, we're continuing to jointly pursue solar and wind development ... in Kentucky with a large utility company, and we are in discussions with other large renewable energy developers," Long said.

"On the carbon capture front, our Marcus Hook project looks financially attractive based upon preliminary cost estimates and design feasibility studies," Long said. The project would capture CO2 from flue gas and deliver it to customers for industrial applications. Long said Energy Transfer is looking at other projects, including the capture of CO2 from processing plants for use in enhanced oil recovery or sequestration.

In an earnings release for the third quarter, Energy Transfer reported net income attributable to partners of $635 million, an increase of $1.29 billion compared to the same period the previous year. Net income per limited partner unit was 20 cents. Adjusted EBITDA for the quarter was $2.58 billion, compared to $2.87 billion for the same three months in 2020. The company said the third quarter of 2020 benefited from about $300 million of one-time items and gains from optimization activities.

Adjusted distributable cash flow attributable to partners for the third quarter was $1.31 billion, compared to $1.69 billion for the same period in 2020.