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Here's What Caused Energy Transfer Partners LP's 7% Swoon in June

By Matthew DiLallo – Updated Jul 9, 2017 at 4:51PM

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The pipeline MLP’s legal issues continued to grow.

What happened

Units of midstream MLP Energy Transfer Partners (ETP) tumbled 7.1% in June, according to data from S&P Market Intelligence, after several issues plagued the company last month.

So what

Energy Transfer Partners started off the month with some good news, announcing early on the first of June that its $4.78 billion Bakken Pipeline had finally commenced commercial service and was transporting oil from the Bakken Shale to the Gulf Coast as well as points in between. The pipeline would save money for refiners such as Phillips 66 (PSX -0.37%) -- which is also a 25% stakeholder in the system -- because they'd no longer need to use more expensive rail or trucks to get low-cost Bakken oil to their refineries.

An oil pipeline in North Dakota.

Image source: Getty Images.

But the tide quickly turned after a Reuters report later in the day revealed that regulators found signs of diesel in a drilling fluid sample collected from a spill that happened near Energy Transfer's Rover gas pipeline construction project in Ohio this past April. That spill is causing delays for the $4.2 billion pipeline, which the company had expected to complete later this year. Meanwhile, the presence of an undocumented substance in the drilling fluids gave several environmental groups more reason to urge The Army Corps of Engineers to step in and halt construction of the project. That's an ominous sign, considering these groups caused significant delays in completing the construction of the Dakota Access section of the Bakken Pipeline.

Those issues on the Dakota Access Pipeline would come back to haunt the company later in the month, when a federal judge ruled that the Army Corps of Engineers didn't adequately consider the impacts of an oil spill under a key waterway in North Dakota. The judge ordered a new environmental analysis and said he'd consider stopping the flow of oil until the Army completed its review. While a subsequent ruling will allow the pipeline to continue transporting oil while the Army conducts the additional environmental review, the judge could still shut it down. If that were to happen, it would have a significant impact on Energy Transfers' future earnings, as well as impact partners like Phillips 66, which is banking on the oil and cash flow from the system.

Now what

June was a rough month for Energy Transfer Partners, which is facing legal battles on two of its largest pipeline projects. While a permanent halt to both systems is unlikely, the uncertainty surrounding a potentially lengthy delay weighed on the stock last month. So there's still plenty of headline risk, since an unfavorable outcome from any of its legal battles could cause another wave of selling.

Matt DiLallo owns shares of Phillips 66. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Energy Transfer Partners, L.P. Stock Quote
Energy Transfer Partners, L.P.
Phillips 66 Stock Quote
Phillips 66
$108.04 (-0.37%) $0.40

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