Energy Transfer (ET +1.02%) has invested billions of dollars in expanding its midstream network over the past few years. Those investments continued to pay off during the second quarter, which was another record setter for the pipeline giant. That strong showing gave management the confidence to boost the full-year outlook.
Digging into the results
|
Metric |
Q2 2019 |
Q2 2018 |
Change |
|---|---|---|---|
|
Adjusted EBITDA |
$2.82 billion |
$2.26 billion |
24.8% |
|
Distributable cash flow (DCF) |
$1.60 billion |
$1.3 billion |
23.2% |
|
DCF per unit |
$0.61 |
$0.50 |
22% |
|
Distribution coverage ratio |
2.0 times |
1.63 times |
22.7% |
Data source: Energy Transfer.
Energy Transfer delivered nearly across-the-board growth during the second quarter:
Data source: Energy Transfer.
The biggest contributor was the company's crude oil segment, where earnings soared 37% year over year. Fueling that growth were rising volumes on the company's oil pipelines in Texas and on its Bakken pipeline. It benefited as producers pumped more oil into its legacy systems as well as through its recently completed expansion projects.
The other notable growth driver during the quarter was the NGL and refined products segment, where earnings leaped nearly 40%. Energy Transfer benefited from the recent completion of several expansion projects, including the Mariner East 2 pipeline and new NGL processing facilities in Texas. Higher production in the Permian Basin, meanwhile, boosted volumes on its NGL pipelines in Texas and increased exports from its Nederland terminal in Texas.
Those positives helped more than offset a slight weakness in the midstream segment, where earnings slipped less than 1% due to lower NGL and natural gas prices.
Image source: Getty Images.
A look at what's ahead
While commodity prices remain volatile, that isn't having any impact on the company's full-year results. Instead, Energy Transfer has outperformed expectations this year. As a result, the company boosted its full-year forecast. It now expects adjusted EBITDA to be in the range of $10.8 billion to $11 billion, which is up from its prior $10.6 billion-to-$10.8 billion range. At the midpoint, the company's revised guidance implies a 14.6% increase from 2018's total.
Energy Transfer also reduced its capital expense budget from $5 billion to a range of $4.6 billion to $4.8 billion. That's mostly a result of the company's decision to pull the plug on the proposed Permian Gulf Coast pipeline.
While capital spending is going down, Energy Transfer still has plenty of expansion projects underway and in development. The company announced it would build an eighth NGL processing complex in Texas that should start up by the second quarter of 2021. Meanwhile, it's expanding its Permian Express 4 system, which should be online later this quarter. It's also building a new ethane storage tank at Nederland that should be in service by year-end. On top of that, the company is working on a large-scale expansion of its Bakken pipeline. As these and other projects come online, they'll enable the company to continue growing at a healthy clip in the coming years.
The expansion plan continues to pay dividends
Energy Transfer's investments are fueling big-time growth. As a result, the company generated twice as much cash as it needed to cover its 9.2%-yielding distribution in the second quarter. That left it with $800 million in excess cash to help fund expansion projects that will fuel more growth in the coming years. That combination of growth and income makes Energy Transfer an excellent stock for income-seeking investors to consider buying.
