Units of Energy Transfer (ET 1.14%) surged 21.9% in February, according to data provided by S&P Global Market Intelligence. Driving up the master limited partnership (MLP) was a combination of higher oil prices, an acquisition, and its fourth-quarter results.
Oil maintained its upward momentum last month, rallying almost 20%. That pushed the U.S. crude oil benchmark price, West Texas Intermediate, up above $60 a barrel, which was close to a two-year high. OPEC fueled crude's continued rally by holding back supply, which is propping up prices. That's enabling the economy to burn off the excess crude oil inventory while demand bounces back. Higher prices will benefit pipeline companies like Energy Transfer since it will boost its commodity-sensitive midstream activities like margin- and volume-based contracts.
Another driver of Energy Transfer's rally last month was the revelation that it's acquiring fellow MLP Enable Midstream Partners (ENBL) in a $7.2 billion deal. Energy Transfer will merge with its peer in an all-equity, no-premium transaction. The combination will enhance its footprint, improve its credit profile, and should yield at least $100 million in annual cost savings.
Finally, Energy Transfer reported its fourth-quarter results last month. While its earnings and cash flow declined, it noted several positives. The MLP doesn't see any scenario where its controversial Dakota Access Pipeline will shut down, and it sees its earnings rebounding in 2021 as higher oil prices should boost U.S. oil production. Meanwhile, its capital spending should come down, enabling it to generate excess cash. When combined with the Enable Midstream deal, its balance sheet should improve during the year.
The energy market is recovering, which is welcomed news for Energy Transfer. Add that to its upcoming merger, and the midstream company should generate more cash this year. Because of that, the company's 7.5%-yielding distribution looks to be on solid ground and could start heading higher as the MLP's balance sheet improves.