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Energy Transfer eyes expansion projects, credit upgrade from simplification

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Energy Transfer eyes expansion projects, credit upgrade from simplification

The Energy Transfer family of midstream energy partnerships is considering several expansion projects as it streamlines its structure with the impending $26.55 billion merger of Energy Transfer Partners LP and Energy Transfer Equity LP.

Energy Transfer group COO Marshall McCrea said during a second-quarter earnings conference call that Energy Transfer Partners, or ETP, is looking to beef up Dakota Access LLC's 1,172-mile pipeline that began moving crude oil from North Dakota's Bakken Shale to an Illinois pipeline hub in 2017 "as much as efficiently possible" and expand a proposed joint venture ethane pipeline and Gulf Coast export terminal that would supply Satellite Petrochemical USA Corp.

"We'd be disappointed if we didn't announce in the next year an expansion of our Satellite area by at least 150,000 barrels," McCrea said on the Aug. 9 call.

He added that Permian Express Partners LLC, ETP's joint venture with Exxon Mobil Corp., will "probably" sanction another expansion of the crude oil pipeline to the Gulf Coast.

Energy Transfer's project backlog is due to ease up by the end of 2018, with the $4.2 billion Rover pipeline prepared to open its full 3.25 Bcf/d of natural gas takeaway capacity for Marcellus and Utica producers and subsidiary Sunoco Pipeline LP's Mariner East 2 liquids pipeline scheduled to begin transporting 354,000 barrels per day of Appalachian ethane, propane and butane to a marine export terminal near Philadelphia by the end of the third quarter.

CFO Thomas Long reiterated that ETP's pending combination with Energy Transfer Equity, or ETE, will speed deleveraging. Executives are looking for a corporate credit rating upgrade beyond BBB-, the lowest investment-grade rating, once the transaction closes. ETE is rated BB-, three notches below BBB-, by S&P Global Ratings. ETP carries a BBB- rating.

"I won't deny … we [would] love to see a mid-BBB," Long said.

ETE's $26.55 billion stock deal to buy out ETP would eliminate the required cash payouts from ETP to ETE's general partner and reflect the industry's movement toward self-funding equity needs. Once the deal closes in the fourth quarter, executives have said the combined master limited partnership would have a 4x to 4.5x leverage ratio.

The simplified MLP, however, will not be looking to acquire new assets anytime soon. According to Energy Transfer chief Kelcy Warren, there are no bargains in the midstream sector. "We've got investment bankers selling assets to investment bankers," he said during the call. "That's a dogs-and-cats-living-together kind of thing."

Long, meanwhile, credited Rover as a big growth component during the second quarter that helped contribute to ETP's record distributable cash flow, while analysts with the energy investment bank Tudor Pickering Holt & Co. were impressed by the liquids segment's performance.

"NGL Transportation & Services merits [an] honorable mention as step-up in Permian volumes more than offset prolonged Mariner East 1 outage," they wrote in an Aug. 9 note to clients. "We continue to view the complex as poised to narrow the valuation gap to peers as full in-service of long awaited capital projects and out-sized marketing exposure drive balance sheet improvement."

ETP on Aug. 8 reported second-quarter adjusted EBITDA of $2.05 billion, up from $1.54 billion a year earlier. The S&P Global Market Intelligence consensus estimate of adjusted EBITDA was $1.91 billion.

The partnership's distributable cash flow in the second quarter was $1.49 billion, an increase from $978 million a year earlier.

ETE reported net income attributable to partners of $355 million in the second quarter of 2018, up from the $212 million reported in the year-ago quarter.

Distributable cash flow, as adjusted, was $407 million, compared to $240 million in the second quarter of 2017.

S&P Global Ratings and S&P Global Market Intelligence are both owned by S&P Global Inc.