Energy Transfer (NYSE: ET) has been on an acquisition binge. The midstream giant recently closed its nearly $3.1 billion purchase of WTG Midstream, which followed its $7.1 billion merger with fellow master limited partnership (MLP) Crestwood Equity Partners last November. On top of that, the company has continued to invest heavily in organically expanding its operations.
Those investments helped fuel record volumes across several of the MLP's assets during the third quarter, contributing to its strong earnings growth. With a large and growing pipeline of expansion opportunities, Energy Transfer should have plenty of fuel to continue growing.
Drilling down into Energy Transfer's third-quarter results
Energy Transfer delivered robust volume growth across nearly its entire franchise during the third quarter, setting several new partnership records:
- Crude oil transportation: Up 25% to a record level.
- Crude oil export volume: Up 49%.
- Midstream gathered volume: Up 6% to a record level.
- Midstream natural gas liquids (NGLs) produced volume: Up 26% to a record level.
- NGL fractionation volume: Up 12% to a record level.
- Total NGL exports: Up 3% to a record level.
- NGL transportation volume: Up 4% to a record level.
- Refined products transportation volume: Up 4%.
The acquisition of Crestwood Equity Partners and WTG Midstream helped fuel the record volume. The MLP also benefited from recently completed expansion projects and a strong market environment.
Energy Transfer's record-setting volume helped fuel strong earnings growth in the quarter. The MLP generated nearly $4 billion of earnings before interest, taxes, depreciation, and amortization (EBITDA), an almost 12% increase from the year-ago period. Meanwhile, distributable cash flow was roughly flat, compared to the year-ago period, at about $2 billion due to increased maintenance capital spending.
The MLP still produced enough cash to cover its high-yielding distribution (nearly 7.5% yield), with ample room to spare. It paid $1.1 billion of distributions during the period, leaving roughly $900 million in excess free cash flow. That easily covered the MLP's growth capital spending ($724 million), enabling it to maintain its strong balance sheet.
More growth is coming down the pipeline
Energy Transfer is in a strong position to continue growing its volume and earnings. It should continue to get a boost from the WTG Energy deal, which it closed in July.
Also in July, the midstream company closed an accretive joint venture with affiliated MLP Sunoco to combine their crude oil and produced water-gathering assets in the Permian Basin. Energy Transfer has ample financial flexibility to continue making accretive acquisitions as opportunities arise.
Meanwhile, the MLP should continue to get a boost from expansion projects. It recently completed an expansion of its Orla East processing plant in the Permian Basin and a 30-mile crude oil pipeline. These and other recently completed projects should increase its volume and cash flow in the coming quarters.
On top of that, Energy Transfer has a slew of expansion projects under construction. It expects to invest between $2.8 billion and $3 billion into growth capital projects this year. It's expanding its export, processing, and pipeline capacity, building several natural gas-fired electric generation plants, and working on optimization and debottlenecking projects. Its current slate of projects should come online through 2026, providing visibility into its volume and cash-flow growth for the next few years.
In addition, it has several proposed projects under development, including its Lake Charles LNG terminal, Blue Marlin offshore oil export facility, and several lower-carbon energy projects like carbon capture and storage and blue ammonia. Securing these and other expansion projects would further enhance and extend the company's growth outlook.
Lots of growth still ahead
Energy Transfer is growing briskly this year, fueled by acquisitions and expansion projects. Those drivers should continue to power its growth for the next several years.
Because of that, the company should have no trouble continuing to increase its high-yielding distribution (it's targeting 3% to 5% annual growth). That combination of growth and income could enable the MLP to produce robust total returns in the coming years.
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Matt DiLallo has positions in Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
